Big medical expenses drove $176 million operating loss last year at Medica

Minnetonka-based health insurer Medica posted a $176 million operating loss last year due to rising medical costs and lagging reimbursements from governments that sponsor health plans.

The financial results, which the company released Friday, fit with a pattern of tougher financials in 2024 for the state’s nonprofit insurers, as well as results prompting a huge stock sell-off this week at Eden Prairie-based UnitedHealth Group, parent company of health insurance giant UnitedHealthcare.

Medica still has large financial reserves and remains poised for certain strategic growth initiatives, Chief Financial Officer Krista Dusil said.

But the company stopped selling coverage as of Jan. 1 in Arizona, Illinois and Kansas — three states where Medica’s combined enrollment was less than 4,000 people. The exits leave the insurer operating in Minnesota and eight other states.

“It was a tough year,” Dusil said. “There is still expansion happening where it makes sense with that strategic focus.”

Medica employs about 2,500 people and is the fifth-largest nonprofit group in Minnesota by revenue.

The $176 million operating loss last year, which came on a base of about $6.3 billion in revenue, was a reversal from the insurer’s $51 million operating profit in 2023. Performance both years was better after accounting for returns on the company’s sizable investment portfolio.

In 2024, patients with Medica insurance used medical care services at a significantly higher rate than expected, as payments from the Medicare and Medicaid programs fell short of the expense trend, according to Medica.

Pharmacy costs grew quickly and payment rates were higher to health systems, which have sought increases to help offset inflationary pressures, workforce shortages and supply-chain disruptions, Dusil said.

“They’ve been under a lot of stress,” she said, “and so we find ourselves in a lot of conversations with provider systems about that stress.”

Other insurers have been citing similar factors in financial results. Just this week, surprisingly high medical costs prompted the parent company of UnitedHealthcare to chop its earnings forecast for 2025, prompting a 22% one-day decline in its stock price.

Earlier this month, Minnetonka-based UCare said it was working to avoid job losses after the nonprofit insurer posted a $504 million operating loss in 2024. The parent company of Eagan-based Blue Cross and Blue Shield of Minnesota, another nonprofit, saw operating earnings decline 73% last year, although the company still reported operating income of $27.6 million.

Like other health plans, Medica saw strong earnings during the first year of the COVID-19 pandemic before annual declines in profitability. The downward trend prompted the health insurer early last year to eliminate 162 jobs.

More job cuts are not expected, however, due to last year’s operating loss, Dusil said.

Financial performance won’t turn on a dime this year, she said, since profit-and-loss cycles for nonprofit insurers typically play out over several years. But Dusil said Medica officials are confident in a new multiyear strategy.

“We’re not maximizing earnings for a shareholder,” she said. “The goal is simple: To have a sustainable business model to provide care for our members. We have a long-term plan for driving sustainability, better outcomes and simpler experience for our members and partners.”

The Minnesota Star Tribune uses the term “profit” to describe earnings at the state’s largest nonprofit groups to reflect the significant capacity of these large organizations to make money that is reinvested in operations. For-profit companies generally make at least some earnings available to outside investors.

Medica provides coverage to about 760,000 people spread across the individual health insurance market, fully insured employer groups as well as health plans for people who qualify for coverage from the Medicare or Medicaid government programs.

In addition, the company serves as third-party administrator for about 610,000 people in “self-insured” health plans, where employers take the financial risk for the cost of claims and hire companies like Medica to handle operations.

Over the past decade, Medica’s strategy has focused on expansion outside Minnesota, which has been the insurer’s home state since the founding of predecessor companies more than 40 years ago.

Medica dates to the mid-1970s, when doctors in the Twin Cities created an HMO called Physicians Health Plan of Minneapolis. This insurer merged with another health plan in 1991 to create Medica.