Minnesota

Aprik 5, 2023

Minnesota HMOs are likely to report strong profits in their 2022 financial statements, to be filed this week. After sharp declines in net income for Minnesota hospital systems in 2020, they had much improved financial results in 2021, the second year of the COVID-19 pandemic.

July 6, 2022:                                                          Contact: Allan Baumgarten, 952/212-8589

Minnesota Health Market Review 2022 finds:

National insurers gain market share;

Minnesota health plans add enrollees, increase profits despite higher medical costs

            (Minneapolis-St. Paul) National health insurers are grabbing more market share in Minnesota, and some Minnesota companies are expanding outside the state. HMOs increased their enrollment by 8.5% in 2021, adding Medicaid and Medicare beneficiaries and, despite higher medical expenses, they generally maintained their strong profitability from 2020, the first year of the COVID-19 pandemic.

            These and other findings are reported in Part One of Minnesota Health Market Review 2022, released today by Allan Baumgarten. First published in 1990, this is the 33rd edition of the report, which analyzes key trends and competitive strategies for health plan companies and hospital systems in Minnesota’s health care markets. In Part Two of the report, to be released later this year, we present our analysis of the state’s provider systems and their strategies, with 2021 data on their financial performance and measures of inpatient utilization. The new report finds that:

• Measured by insurance premium revenues, UnitedHealthcare and Humana have grown their share of the health insurance market in Minnesota from 3.7% in 2017 to 9.1% in 2021. UnitedHealthcare bought the PreferredOne health plans from Fairview Health in 2021. Under its new Medicaid managed care contract, UnitedHealthcare will add several hundred million in new revenues in 2022.
• At the same time, Minnesota health plan companies are expanding into other states. Medica acquired a controlling share of SSM Health Plans, including Dean Health Plan, one of the largest insurers in south central Wisconsin. UCare is bidding on Medicaid managed care contracts in Iowa.
• HMOs and County-Based Purchasing plans reported net income of $279 million, or 2% of underwriting income of $13.757 billion. Combined net income was a little higher than in 2020, when the average profit margin was 2.3%. Of the HMOs, Blue Plus had the highest net income, $111,1 million, while Medica Health Plans had the highest margin, at 7.7%. Medica Insurance Company, based on operations in Minnesota and eight other states, had net income of $510 million or 17% of revenues.
• Public programs were the most profitable line of business for Minnesota health plans. HMOs had underwriting income of $240.9 million on programs including Medicaid, MinnesotaCare and Minnesota Senior Health Options (MSHO, for persons dually eligible for Medicare and Medicaid). They made $101.6 million on Medicaid and $103.7 million on Minnesota Senior Health Option. In fact, HMOs and County-Based Purchasing plans had combined underwriting income on their MSHO plans of $361.1 million in the past four years.
• Enrollment in Medicaid HMOs increased by 107,000 lives or 9.8% in 2021 and continued to increase in the first quarter of 2022. Overall HMO enrollment grew by 8.5% in 2020, with UCare, the largest Medicaid HMO, adding about 67,000 lives, and Blue Plus growing by 41,300 members. Medicaid managed care enrollment grew to 1.15 million in June 2022, although it is expected to drop once the COVID-19 public health emergency ends. Minnesota will then face a large backlog of recipients who will need to reverify their eligibility for Medicaid benefits.
• Enrollment in Medicare Advantage HMO and PPO plans grew by 39,000 in 2022, or 7.2%. About 48.4% of Medicare beneficiaries in the state are in Medicare health plans, above the national average of 44.4%. UCare has the largest HMO plans in the state, and Blue Cross Blue Shield has the largest PPO plans.
• Some Minnesota companies have moved capital from their local plans to make investments in other states. In the past two years, Medica Insurance Company paid dividends totaling $575 million to its parent company, some of which was likely used to buy a 55% share in the SSM health plans. Blue Cross Blue Shield of Minnesota paid dividends of $180 million in 2020 and 2021 to its parent, making that money available for other investments.

            Excerpts from the report, including the “Minnesota Health Plans at a Glance” page can be viewed at AllanBaumgarten.com. Subscriptions to Minnesota Health Market Review 2022 in interactive PDF format, including both Parts One and Two, can be ordered and downloaded for $160.00 at www.AllanBaumgarten.com. Phone: 952/212-8589. E-mail address: [email protected]

Allan Baumgarten currently publishes reports analyzing health care payer and provider markets in Minnesota and five other states: Colorado, Florida, Michigan, Ohio and Texas. He conducts project research for a number of clients and has completed three studies of health plan and provider system strategies for the Robert Wood Johnson Foundation. More information about those projects is available at his website.

Minnesota Health Market Review 2021, Part Two finds:

In first year of pandemic, hospitals report fewer inpatient days, mixed financial results;

HMOs increase enrollment and see higher medical expenses in 2021

            Minnesota health systems had mixed financial results in 2020, the first year of the COVID-19 pandemic. Most lost money on patient care operations but some systems had large other revenues and even improved on their net income from 2019. HMOs increased their enrollment in the first nine months of 2021, adding 83,000 members in Medicaid plans.

            Part Two of Minnesota Managed Care Review 2021, released today, analyzes hospital system finances based on data from 2020 and updates health plan data through the first nine months of 2021. Allan Baumgarten, a Minneapolis-based analyst, has published his Minnesota market analysis since 1990. Baumgarten uses data from Medicare cost reports, health insurer quarterly and annual statements and other sources and shows some impacts of the COVID-19 pandemic on hospitals in 2020 and health plans in the first nine months of 2021.

            The analysis examines data for 32 hospitals in the Twin Cities area, including four in western Wisconsin that are part of Minnesota systems, and 50 hospitals serving communities in outstate Minnesota. The report presents data for the major health systems, including Fairview, Allina and HealthPartners in the Twin Cities and Mayo Clinic, Essentia, CentraCare and Sanford Health in outstate Minnesota.   Using quarterly statement data for the first nine months of 2021, the report shows the impact of the COVID-19 pandemic on Minnesota insurers, including Blue Cross Blue Shield, UCare and HealthPartners.

            In the new report, Baumgarten found:

• Twin Cities area hospitals reported net income of $305.1 million in 2020, or 2.9% of net patient revenues. Patient care revenues were down by 7.4% from 2019, and combined net income was off by 49% from their very strong results in 2019. Even though the COVID-19 pandemic resulted in higher care expenses for staffing and special equipment and reduced revenues because some surgeries were suspended, some hospital systems improved their net income with the help of federal Provider Relief funds. Twin Cities hospitals received $493.1 million according to their FY 2020 Medicare cost reports.

• The HealthPartners hospitals, including Regions and Methodist, had the best results in 2020: $190.3 million in net income, or 11% of net patient revenues, up from $174.8 million in 2019. Hennepin Health also increased its net income compared to 2019. However, the M Health Fairview hospitals saw their patient care revenues drop by 6.8% and reported a loss of $40.3 million, The system lost $70 million at Bethesda and Joseph hospitals, which it has since closed. Net income for the Allina Health hospitals in the Twin Cities dropped from $220.8 million in 2018 to $148.8 million in 2019 and only $11.9 million in 2020.

• Inpatient hospital days at Twin Cities hospitals dropped by 10% in 2020. The M Health Fairview hospitals provided 18% fewer inpatient days in 2020. Days declined across all systems and all payers as certain surgeries were suspended and as patient elected not to go to hospitals, even in acute care situations.

• Outstate health systems generally maintained their strong profitability in 2020. As a group, they had net income of $1.47 billion and an average margin of 11.2%, almost as much as in 2019. The Mayo Clinic hospitals had net income of $790 million (21.4% of revenues), with the Rochester hospital reporting net income of $828.9 million. Sanford Health increased its net income by 61.8% in 2020, to $440.2 million in 2020. The Allina Health and M Health Fairview hospitals in this group improved their net income in 2020, but the Essentia Health hospitals in northern Minnesota and CentraCare/Carris Health saw their revenues and net income drop.

• Enrollment in Medicaid HMO enrollment increased 8.2% in first three quarters of 2021, after growing by 18.5% in 2020. UCare and Blue Plus added most of the 83,000 new enrollees. The market share of these plans is likely to shift in the next two years, as the state implements new contracts for Medicaid managed care in both the Twin Cities and outstate Minnesota. UnitedHealthcare will have a contract in the Twin Cities area for the first time. These Medicaid contracts are worth billions and competition for them is aggressive.

• Minnesota health plans saw their medical expenses increase and profits decrease in the first nine months of 2021. In 2020, medical loss ratios had dropped sharply as fewer patient received services. In 2021, utilization and medical expenses began to return to pre-pandemic levels, resulting in lower, though still strong, profit margins.

This is the 32nd year that we have published Minnesota Health Market Review. Part One of the 2022 edition is scheduled for release in June. The Part One report will examine 2021 data on the enrollment trends and financial results of Minnesota health plans, including a fuller analysis of the impacts of the COVID-19 pandemic. Excerpts from the report and subscription information can be found at AllanBaumgarten.com

Exhibit 1: Minnesota Health Plans at a Glance, 2021

2022 data set for Minnesota

Minnesota Part One

Minnesota Part Two

• Christopher Snowbeck wrote in the Minneapolis StarTribune: "Operating Losses Swamp Investment Gains at Health Plans in Minnesota" Click here to view​​

• Christopher Snowbeck wrote in the Minneapolis StarTribune: "Study: Big hospitals outside Twin Cities grow profits." 
• David Montgomery wrote about the 2015 report in the St. Paul Pioneer Press: "Metro hospital profits fell in 2014, while outstate earnings rose"
• Dan Diamond wrote about the 2015 report in Poiltico Pulse: "The Mayo Clinic had a nearly 18 percent profit margin"

Minnesota Health Market Review 2016, Part One, released May 25: "HMO Profits for Public Programs Surpass $230 Million; Medicaid Enrollment Grows But Individual Market Remains Volatile; Hospitals Double Down on Health Plan Strategy"

• Christopher Snowbeck wrote in the Minneapolis StarTribune: "Record HMO profits from state programs." Click here to view