For-profit HMOs: Minnesota is poised to fall in a trap

In 1996, management of a nonprofit health plan in Ohio agreed to sell it to the for-profit Columbia/HCA. The for-profit would pay the nonprofit executives a $19 million “consulting fee.” The for-profit also paid $3.9 million in “consulting fees” to the seven nonprofit directors. The insurance regulators agreed to keep the transaction secret. When the deal leaked out, the Cleveland Plain Dealer sued to get the documents, and the deal collapsed. The directors, who already received their “consulting fee,” agreed to return $2.4 million to the nonprofit.

In Massachusetts, a for-profit company paid $4 million to Fallon Healthcare System, which owned a health plan and hospitals, for one of its hospitals. The for-profit received $17 million of working capital and equipment valued at $72 million from Fallon. The for-profit then paid bonuses of $60 million to Fallon executives and physicians. The Boston Globe retained an appraiser who valued the hospital alone as worth $38 million.

In Indiana, the executives of a nonprofit health plan purchased stock in a subsidiary that they planned to convert to a for-profit public company. They paid $261,000 for options to buy 985,000 shares of the successor for-profit company. When the for-profit had a public offering, their stock jumped in value to $29 million, an increase of more than 10,000 percent.

Blue Cross Georgia converted to a for-profit company, which was then sold to WellPoint Health Network. The executives received $28 million in bonuses. The CEO got $3 million.

The executives of a California nonprofit health insurance plan sought to quietly convert to a for-profit enterprise by paying $100 million to a charitable organization. After public exposure, the executives raised the price to $3 billion.

After numerous scandals, many states enacted laws to stop the corporate raids on the treasuries of nonprofit health insurance plans.

Minnesota seems to be going in the opposite direction.

For 40 years, Minnesota prohibited for-profit corporations from owning HMOs. As a result, in Minnesota five nonprofit health plans dominate the market: HealthPartners, Medica, Blue Cross Blue Shield of Minnesota, Preferred One and UCare. This may not sound like many companies, but it is more than the one or two plans that exist in some states. In 2016, these nonprofit health plans reported assets of $7.1 billion and reserves of $3.3 billion.

In January, the Legislature enacted a law that allows HMOs in Minnesota to be for-profit corporations. A bill had been meandering through the legislative process that would have established various protections if such a conversion took place, such as independent valuation of the nonprofit assets (which would then be protected for policyholders and taxpayers), a prohibition on self-dealing by the executives, public hearings, and adequate tools to review the transactions.

Last week, in a conference committee, the Legislature passed a “delete all” amendment that stripped out the most important protections, apparently claiming that the assets of the nonprofit health plans can be valued at a sliver of their worth.

Minnesota has UnitedHealthcare, the largest for-profit HMO in the country. The company has had some very profitable years, at one point awarding its CEO $1.6 billion in stock options. Until this year, UnitedHealthcare could not sell HMO coverage in Minnesota because of the prohibition on for-profit HMOs.

There is no mystery about the name of the leading for-profit candidate to acquire the nonprofit health insurance plans in Minnesota. And there should be no surprise when the nonprofit health insurance executives — acting under the cover of the “delete all” legislation — once again fleece the policyholders, taxpayers and the public.

I hope Gov. Mark Dayton vetoes this troubling “delete all” legislation.