Shilling me softly: Minnesota overpays private health insurance companies

December 14, 2010

Carl Sack
Zenith News

Health care advocacy groups say private health insurers in Minnesota have been bilking state taxpayers out of at least $70 million a year in overpayments for administering public programs for seniors, the disabled, and the poor.

Earlier this year, the Greater Minnesota Health Care Coalition and TakeAction Minnesota sent a letter to then-Representative Mark Dayton, urging him crack down on abuse of state funds by non-profit HMOs.

The groups estimate HMOs in the state have accumulated $1.25 billion in reserves, including almost $500 million in overpayments for public programs. They want this money to be reclaimed to help fill the state’s massive budget deficit.

With Dayton as governor-elect, “we see real opportunity to expose these companies and turn things around,” says Buddy Robinson, a representative of the Minnesota Citizens Federation-Northeast and Greater Minnesota Health Care Coalition.

A state law capping insurance company reserves was removed in 2004. “Ever since the quiet removal of that upper limit, we’ve seen a ballooning of their reserves,” Robinson says.

According to the letter, HMO profit margins from public programs have averaged 3.35 percent over the past decade, while the Department of Human Services’ target margin is between 0.5 and 1 percent. These figures are based on the companies’ financial reports to the state.
DHS representative Lisa Wilder says she was unaware of the issue.

A 2008 Legislative Auditor’s report found that, since 2000, health plans have made money from state programs every year. Only in 2006 were they within the state’s target range for profits. “We’re hoping that, with the cries to be fiscally responsible with state money and not waste a dime of it...even Republican legislators will not be able to justify these overpayments,” says Robinson.

Larry Bussey, a representative of Medica, one of three HMOs that administer state programs in Duluth, says the company’s gain from state programs “average[s] out to one to two percent.”

Figures reported to the state by Medica show a 3.7 percent average profit from those programs over the past five years. The only public program on which insurance companies consistently lost money was General Assistance Medical Care (GAMC).

In 2009, they lost $29 million on GAMC, but still made $132 million in overall surpluses from all state programs, representing a 4 percent profit. GAMC was eliminated as an insurance program on June 1, after being unallotted from the state budget by Governor Tim Pawlenty last fall.

“We typically lost money on GAMC, though [the cut] wasn’t a change we supported,” Bussey says.

The program covered 35,000 Minnesota residents with incomes of $7,800 a year or less, including around 600 in Duluth. After statewide protests, GAMC was briefly extended, then downsized by 75 percent and changed to a grant program for hospitals, called Coordinated Care Delivery Systems (CCDS).

Only four hospitals agreed to participate, all within the Twin Cities metro area. GAMC recipients received a letter offering them the choice to continue on the reworked program or switch to MinnesotaCare, the state’s sliding-scale public insurance for low-income adults.

Those who opted to stay on GAMC could not switch to MinnesotaCare for another six months. The letter did not list the locations of participating hospitals, only warning that “there may not be a CCDS located near you.”

Recipients were supposed to choose among the four hospitals, but three of them filled their limited GAMC slots quickly. “Up here, only a few folks opted into the system,” says Elizabeth Olson, a health care advocate with Churches United in Ministry (CHUM).

“They could receive a continuum of care down in the Twin Cities, which was pretty disastrous, having to get down there for their appointments. So, most of the folks actually just lost their insurance.”

GAMC continued to cover alcohol and drug treatment through St. Louis County, as well as prescription drugs with new co-pays of up to $7 per month.

Some patients had difficulty getting their medications because they no longer had a local doctor, so CHUM and the Lake Superior Community Health Center have stepped in to provide free prescription-writing, Olson says.

Seventeen Minnesota hospitals, including St. Mary’s/Duluth Clinic (now Essentia) were on the original list of potential CCDS hospitals. They declined to participate because reimbursement from the state would not cover the cost of accepting GAMC patients.

Olson says most recipients who worked with advocates from CHUM or the Community Health Center switched to MinnesotaCare, though coming up with the $4 per month minimum premium has been difficult for some. St. Louis County now has a pool of money available to cover those costs.

John Micklick chose to remain on GAMC and faced difficulty getting needed treatment. His mother gave him rides to appointments at North Memorial Medical Center.
“It just sucked that I had to get rides down to the Cities. I don’t have a license; I don’t have a vehicle.”

When he needed orthopedic surgery on both knees, Micklick had to appeal to the state to contract with a specialist because North Memorial doesn’t have an orthopedic clinic. His regular mental health treatment was put on hold.

He switched to MinnesotaCare after six months and, in November, was able to access providers in Duluth again.
Trixie Weddig isn’t sure who’s paying for her care, which she says is still in limbo.

A diabetic with mental health issues, Weddig uses prescription shoes with special inserts. At $150, they cost more than she can afford. When she tried to replace a worn-out pair, she was told they were no longer covered.

“Everything just got a lot more complicated...When I go to St. Mary’s, it still says I’m on GAMC, but I’m supposed to be on [Medical Assistance].” Medical Assistance (MA) is federally funded through Medicaid and currently covers very low-income people with disabilities.

When Dayton takes office January 3, he is expected to sign a provision of the new federal health care law, under which MA will expand to insure all adults below 75 percent of the federal poverty limit—the group now eligible for GAMC. The federal government will pick up 90 percent of the tab for a $1.6 billion expansion.

Under federal law, the program will expand in 2014 to cover those with incomes up to 133 percent of the federal poverty level. Robinson’s groups are pushing to replace private HMOs with county agencies for the purpose of administering public programs.

Twenty-six Minnesota counties already run the state’s health care programs, referred to as “county-based purchasing.” Robinson says other counties have tried to take over from the HMOs, but were thwarted by the Pawlenty administration.

Ultimately, he’d like to see private insurance eliminated altogether in favor of a state-run single payer program, but the legislation for such a system—Minnesota Health Plan—is not expected to advance for the next two years due to a newly elected Republican majority in the state legislature.

Some parts of the federal Affordable Care Act will be implemented this fall, although employers and insurance providers have won changes and exemptions from key provisions meant to protect the insured.

On September 23, regulations came into effect that:
•required insurers to keep young adults on their parents’ plans until age 26;
•barred them from rescinding coverage for policyholders who get sick;
•set high limits on insurance payouts; and
•prevented denial of coverage to children with pre-existing conditions.

After large insurance companies threatened to stop writing new child-only policies if they had to cover all children equally, US Health and Human Services Secretary Katherine Sebelius stated it would remain legal for insurers to increase premiums on policies for unhealthy children.

Additionally, insurers providing “mini-med” policies—featuring low premiums, high deductibles, and low coverage limits—can apply for one-year waivers to stay below the legal limit on payouts. As of December 3, 222 companies as well as unions representing 1.5 million low-wage workers had received waivers.

At a December 1 Senate hearing on mini-med policies, executives of McDonald’s Restaurants testified that such policies provide the best available insurance option for its 30,000 employees. The company threatened to stop insuring its workers entirely if the regulations were fully implemented.


A chart presented at the hearing shows McDonald’s plans for its corporate and management staff charge those employees premiums comparable to its policies for restaurant staff, but offer unlimited coverage, while policies for restaurant staff have limits between $2,000 and $10,000.

Another regulation, slated to start in 2011, would limit the amount insurers spend on administration and profits to 15 to 20 percent of their revenue. However, the final rules allow mini-med providers, like McDonald’s, to adjust their accounting methods to meet the requirement.

Richard Thomas assisted with this story.

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