Minnesota HMOs post record 2010 profits

Minnesota HMOs and health insurance companies enjoyed their most profitable year in 2010, driven by strong margins in Medicaid and employer group business, according to a recent report.

The Minnesota Health Market Review found that HMOs and county Medicaid plans garnered net income of $264 million, or 3.6 percent of operating revenue of $7.3 billion last year. Minnesota HMOs posted profits that were 3 percent of operating revenue only once.

Operating profits were $194.3 million, with an additional $69.8 million ininvestment income. Although enrollment in employer group plans continues to fall and has now dropped below 300,000, growth in Medicaid and Medicare plans more than offset those decreases.

At the end of 2010, Minnesota HMOs had combined capital of $1.64 billion, much larger than the amount they are required to have under state law. On average, they had capital equal to nearly three months of operation. In other words, even if no revenue came in, they could continue to pay claims and meet overhead for about 90 days. That is up from 2.4 months in 2009.

Individually, health insurance companies also had strong results. Blue Cross Blue Shield of Minnesota had net income after taxes of $100.1 million and Medica Insurance Company had net income of $44.1 million.

Minnesota health plans improved their profits on Medicaid plans, excluding investment income from $119.5 million in 2009 to $170 million in 2010. State public programs (including the biggest ones — Medical Assistance and MinnesotaCare) accounted for about 46 percent of revenue, but 78 percent of health plan profits last year.

On average, HMOs collected $77 more in premiums from each state recipient per month than they paid out in medical expenses, although losses on MinnesotaCare offset a portion of that profit.

The Minnesota Health Market Review is published by Allan Baumgarten, an independent research consultant whose work focuses on healthcare policy, finance and local market strategies. He also publishes reports on seven other markets: Colorado, Florida, Illinois, Michigan, Ohio, Texas and Wisconsin.