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Mark Zdechlik

Medica draws fire for transferring non-profit reserves to holding company

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Updated: 2:30 p.m. | Posted: 11:17 a.m.

Health insurer Medica sought and received permission from the Minnesota Department of Heath to move $90 million in reserves from its Minnesota not-for-profit HMO to its not-for-profit holding company. The holding company could eventually funnel the non-profit reserve funds into for-profit Medica businesses.

"As businesses grow or shrink, reserve requirements change," Medica said in a statement. The insurer noted that when it pulled out of Minnesota's Medicaid market, it reduced the population of its Minnesota non-profit HMO by 300,000 people.

The Minnesota Department of Health said the transfer raised "serious concerns," and is not in the "public interest," but is legal.

DFL Gov. Mark Dayton called on Medica to return the money to the Minnesota non-profit's reserves.

"That $90 million came from Minnesotans ...It's their money, not Medica's," Dayton said in a written statement.

While the health department has deemed the transfer legal, Minnesota Attorney General Lori Swanson says state officials can legally block the transfer under a two- year provision barring "substantial" asset transfers from non-profit to for-profit entities. Lawmakers added that provision after passing legislation that lifted the state's long-time ban on for-profit HMOs. Swanson says the $90 million, which constitutes 11 percent of Medica's non-profit Minnesota HMO reserve fund, meets the "substantial" standard.

The attorney general is asking health department officials to reconsider their decision to allow the transfer. But a health department spokesman said Friday afternoon that officials had no new information that would cause them to take a closer look at the transaction.

Clarification: An earlier version of this story suggested Governor Dayton allowed a bill permitting for-profit HMOs to become law without his signature. He did sign the legislation.