Dayton declares windfall savings in health care bids

Human Services Commissioner Lucinda Jesson
Human Services Commissioner Lucinda Jesson at a press conference Monday, Sept. 22, 2014.
Tom Scheck | MPR News 2014

Gov. Mark Dayton and Human Services Commissioner Lucinda Jesson announced a windfall Tuesday, saying their renegotiation of state health care contracts would help save taxpayers $650 million.

The savings came from competitive bidding on Medicaid and MinnesotaCare contracts, but those contracts also mean that at least two businesses — UCare and South Country Health Alliance — will see a dramatic loss in revenue.

The renegotiated Medicaid and MinnesotaCare contracts cover 815,000 people enrolled with managed care organizations around the state.

Starting next year, Jesson said, the new contracts will save the state $450 million. She also said health care companies will refund $200 million to the state because the people enrolled in the state-subsidized health insurance plans in 2014 weren't as sick as expected.

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"Today's announcement is another huge milestone of saving about $650 million ... for federal and state taxpayers," Jesson said. "It's a great stride. It's a great thing for taxpayers but it's also a really good thing for our enrollees, given the quality of care that we know we are purchasing through this latest procurement."

Jesson said the state will get to keep about a third of the $650 million. The rest will be sent back to the federal government, which pays for a portion of Medicaid.

The Dayton administration decided in 2011 to open the contracts to competitive bidding. In 2013, the state saved money on contracts in the seven-county metro area. In 2014, competitive bidding was done in 27 counties. This year, all 87 counties were competitively bid, and Jesson said the costs of the contracts are 15 percent lower than last year.

Dayton said the competitive bidding model adopted when he first took office works.

"Should it have been done sooner?" he asked. "Sure. It should have been done before we arrived."

The biggest loser in the contract reshuffling is Minneapolis-based UCare. The HMO, which currently serves Medicaid clients in 58 counties, will not serve any next year. The company said it would lose 360,000 of its roughly 500,000 members.

Ghita Worcester, UCare's senior vice president of public affairs and marketing, said officials at the HMO were shocked the state didn't continue its contract with the company. She said UCare will remain a viable health plan but said some of its programs could be cut, including a mobile dental unit and programs that serve immigrant communities.

"We have to figure out which ones we want to continue and which ones make sense to continue," she said.

Another county-based purchasing plan is also facing a major loss in business after losing out on contracts for 10 of the 11 rural counties that it serves. Leota Lind, CEO of South Country Health Alliance, said her organization will lose 85 percent of its membership. She said there is a possibility her organization, which is owned by counties, will close.

"Yesterday, we were all just a little bit in shock," she said. "We are frustrated. We're really trying to get our head around what this means for our counties, for our members, for our providers."

The three biggest HMOs to pick up market share as a result of the contract bids are Blue Cross/Blue Shield of Minnesota, HealthPartners and Medica. Commissioner Jesson said her department will work to ensure that enrollees have an easy transition to the new health plans by Jan. 1.