UnitedHealthcare sues Minnesota over ban on for-profit HMOs in Medicaid

UnitedHealthcare has filed a lawsuit challenging a new state law that bars for-profit HMOs from running Medicaid health plans.

The measure, which takes effect next year, was part of a massive ombinus bill passed on the last day of the legislative session in May. It covered topics ranging from higher education and traffic cameras to veterinary licensure and power plant emissions and thereby violates the “single subject clause” of the state Constitution, according to the company’s complaint filed in Hennepin County District Court.

Minnetonka-based UnitedHealthcare also says there wasn’t sufficient time for lawmakers to consider the HMO ban, since the Legislature earlier in the session debated making a change that would let existing for-profit HMOs continue in Medicaid.

The lawsuit filed Friday names as defendants the state of Minnesota, Attorney General Keith Ellison and the state Human Services commissioner. The company wants provisions that apply to HMOs in the state Medicaid program stricken from the law.

“UnitedHealthcare is challenging legislation that limits choice for individuals, families and children in Minnesota,” UnitedHealthcare said in a statement. “Minnesotans deserve the right to choose among health plans that offer the broadest access to care, the most innovative services and the highest quality benefits to meet their health care needs.”

A spokesman for Ellison said the Attorney General’s Office would respond to the lawsuit in court. The state Department of Human Services did not provide a comment by Monday afternoon.

Medicaid is funded jointly by the state and federal government to provide health insurance coverage for lower-income residents. For decades, Minnesota has hired managed care organizations to provide Medicaid benefits through health plans.

Currently, about 32,000 beneficiaries have their care managed by UnitedHealthcare. The company has been the first and only for-profit HMO in the state Medicaid program, which for decades was reserved by state lawmakers for nonprofit health plans until an earlier for-profit ban was dropped in 2017.

Critics contend that for-profit insurers have clear incentives to stint on coverage in order to bolster financial returns. The lawsuit, however, quotes a recent state report that found “little to no data are available to assess whether differences across for-profit and non-profit HMOs exist.”

For-profit HMOs are not reimbursed at a higher rate than nonprofit health plans, UnitedHealthcare says in its complaint. The company says the Department of Human Services (DHS) sets rates to produce a profit margin of roughly 1% for all health plans.

“For-profit HMOs are also subject to the same medical loss ratio,” the lawsuit states. “A managed care entity must spend at least 85% of the capitation (premiums) it receives from the state under the Medicaid program on medical claims and claims-related expenses. If the entity spends less than 85% of the capitation, it must refund the portion of premiums that exceed that limit.”

According to the lawsuit, DHS sent UnitedHealthcare a letter June 14 stating that because of the new law the department would not renew for next year its existing contract with the health insurer.

UnitedHealthcare says if this letter is not rescinded, the insurer will be required to send notices beginning in October to tens of thousands of Minnesotans that they will need to find a new health plan for 2025.

In addition, the insurer says the law blocks UnitedHealthcare from offering two health plans it runs for people dually eligible for Medicaid as well as Medicare, which primarily covers seniors.

“[The federal government] has imposed an August 14 deadline for UnitedHealth to demonstrate its eligibility to participate in the dual-eligible plans for the 2025 calendar year,” the lawsuit states. “Unless the court orders the department to withdraw its non-renewal, UnitedHealth will be rejected by [the federal government] and will be unable to operate its dual-eligible plans.”