State eyes HMO reserves to help balance budget

Minnesota's health maintenance organizations are enjoying surging profits from managing three state health insurance programs, and that has attracted the attention of officials looking for cash to balance the state's budget.

The HMOs are holding $1.36 billion regarded as surpluses, prompting Gov. Mark Dayton to appeal to them last week to consider rebates to help the state out.

HMOs are required to maintain certain levels of surpluses to guard against insolvency, the St. Paul Pioneer Press reported Monday. State officials think the companies now have enough of a cushion to follow the example of Minneapolis-based UCare, which last Wednesday pledged to return $30 million to help close Minnesota's $5 billion budget deficit.

"We don't want to be pushing people into insolvency," Lucinda Jesson, the state's human services commissioner, told the newspaper. "I don't think there's any risk of that here."

Regulations focus on ensuring that a plan's rainy day funds don't get too low, but no national standards stipulate when a surplus is too big.

Health plans calculate what's known as their "risk-based capital," the industry's term for the absolute minimum surplus they must maintain. Regulators evaluate the actual size of a health plan's surplus in terms of its relationship to risk-based capital.

If a health plan's surplus falls below 200 percent of risk-based capital, the financial weakness prompts regulatory action. If the surplus falls to 100 percent of risk-based capital, regulators can take over the health plan.

In Minnesota, the health plans' $1.36 billion collective surplus at the end of 2009 amounted to 560 percent of their collective risk-based capital, which worked out to about $252 million, according to the Minnesota Department of Health.

A Consumers Union review of Blue Cross and Blue Shield insurers in 10 states found that their combined surpluses at the end of 2009 amounted to 850 percent of risk-based capital - significantly higher than the Minnesota average.

Sondra Roberto, an attorney with California-based Consumers Union, said the surpluses held by many plans in Minnesota likely are justifiable. But she questioned the $361 million held in reserve by Minnetonka-based Medica and the $251 million held in reserve by Blue Plus, the HMO operated by Eagan-based Blue Cross and Blue Shield of Minnesota.

"Some of these surpluses in Minnesota do raise some concern," Roberto said.

The surplus for Blue Plus worked out to 700 percent of risk-based capital at the end of 2009, according to the state. Blue Cross argues that is appropriate because the HMO is required to accept all state-help-eligible members who are assigned to or select Blue Plus as a provider with the state's public health insurance programs.

At Medica, the surplus worked out to 780 percent of risk-based capital, according to the state. But Medica says the state's calculation isn't accurate and that its HMO surplus actually works out to 688 percent of risk-based capital. Medica's health insurance business for most commercial customers is separate from its HMO, and the company also argues it's best to evaluate its surplus in terms of both businesses combined. Medica spokesman Larry Bussey said the blended surplus worked out to about 630 percent, compared with an internal target of about 600 percent.

Before 2004, Minnesota law set minimum and maximum requirements for health plan reserves. HMOs were required to maintain one to three months' worth of expenses in reserves, and Blue Cross was required to hold two to four months of expenses. Then the state dropped the limits, and regulators switched to the risk-based capital standard in assessing surpluses.

Last week's $30 million giveback from UCare came from a somewhat unique insurer because UCare is offered only to people covered through state and federal health plans. Blue Cross, Medica and HealthPartners are among the state's plans that also sell in the commercial market.

Medica rebated $80 million in 2003 when its earnings were higher than anticipated. The state received $19 million but commercial customers also benefited. If Medica were to make a rebate from its current surplus, it would need to consider giving some to businesses as well as the state, Bussey said.

Lux said Blue Cross doesn't like rebates and would rather keep premiums as low as possible and benefits at appropriate levels.

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Information from: St. Paul Pioneer Press

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