Dan McGrath, HMO Reserves are an Important Part of State Revenue Solution

Since January, state policy makers have looked under every sofa cushion and in every old pickle jar for spare change to solve Minnesota’s revenue crisis.  With a gaping $5 billion hole needing to be filled, Minnesota needs a permanent revenue solution that puts us on a path to a better, healthier future.  One area of common ground for Republican legislative leaders and Governor Mark Dayton should be to reclaim the excess reserves of private health insurers to mitigate cuts to state health care programs.

For decades private health insurers (health maintenance organizations or HMOs) have profited from state contracts to provide care for programs like Minnesota Care and Medical Assistance.  In 2010, the state’s four top insurers, Medica, Blue Cross Blue Shield, HealthPartners, and UCare, had a banner year making a combined $130 million from public programs.  Together, these four insurers have amassed more than $1.5 billion in their reserves – more than 350% of the minimum reserves level recommended by the National Association of Insurance Commissioners.

How did public programs become so profitable for private HMOs?  First, in 2004 HMOs successfully lobbied legislators and the Pawlenty administration to eliminate caps on their reserves.  That meant these “nonprofit” insurers had no limit to how much profit they could squirrel away (the previous cap had been 90 days operating expense on hand).  Second, 8 years of lackadaisical oversight and cozy contracting deals with the Pawlenty administration allowed HMOs to rake in state dollars with relatively little attention to the quality of care they provide.

Governor Dayton and his administration deserve credit for beginning to undo the effects of the Pawlenty administration’s mismanagement.  Already Dayton taken significant steps forward by requiring greater reporting and transparency, initiating competitive bidding for state contracts, and instituting a 1% cap on HMO profits for 2011.  But none of these measures goes far enough toward addressing the current and future state revenue problems.

This is not a debate over if HMOs should have funds in reserve – any sound business should.  Rather, it is a debate over whether Minnesotans are getting the best bang for their health care buck.

In March, UCare, the fourth largest HMO in the state, reviewed its own reserve balance and decided they have more than they should.  In a deal with the Dayton administration, UCare said it would hand back $30 million to the state treasury.  If the legislature and Governor Dayton agree on legislation to reclaim excess HMO reserves and reinstitute a reasonable HMO reserve cap, Minnesotans could get back as much as $500 million of its own money this year.

This Saturday, Minnesotans who are fed up with a cuts only approach to the state budget will join together in a People’s Rally for a Fair Minnesota.  Together we will call for a revenue solution that starts by asking the wealthiest 2% to pay their fair share, including HMO CEOs.  But Minnesota’s corporations must also pay their fair share.  Now is the time to reclaim the money Minnesotans money and turn those dollars into care.

Dan McGrath

Dan McGrath is the Executive Director of TakeAction Minnesota.