State should hit pause on Medica's $90M transfer to for-profit affiliate

Minnesota Health Commissioner Ed Ehlinger is guilty of the same thing he has criticized the state Legislature for: rushing through a major decision involving for-profit health insurers without a thorough review.

To undo this error, Ehlinger should push pause on the hasty approval his agency gave recently to a questionable request from Minnetonka-based Medica. The insurer’s holding company sought to transfer $90 million from its nonprofit Medica Health Plans Inc., which does a large business with the state’s medical assistance programs, to a for-profit affiliate serving consumers in other Midwest states.

More time is needed to evaluate whether a new state law bans the transfer, especially with the Minnesota attorney general’s office strongly arguing that this has not been resolved to its satisfaction.

Assurance is also needed that the Medica transfer serves taxpayers’ interests. At issue is whether assets nurtured through state nonprofit status and insurers’ reliable state medical assistance program line of business can be diverted for the benefit of consumers in other states. Strengthening the financials of Medica’s for-profit operation could help hold down consumer premiums in Iowa, Wisconsin, the Dakotas and Nebraska, for example.

These issues demand airing in a public setting and shouldn’t be left only to internal agency decisionmaking. A transfer of $30 million to Medica’s Wisconsin affiliate earlier this year also merits a review.

The large sums held by the state’s large nonprofit insurers illustrate how important it is to get this right. Minnesota’s four big nonprofit insurers held $3.3 billion in capital and surplus — sometimes referred to as their “reserves” — at the end of 2016. Similar requests to shift assets should be expected, thanks to the Legislature.

In January, lawmakers rushed to pass a health insurance rebate program to assist consumers hit by rate hikes. That legislation included a provision that ended a decades-old state ban on for-profit companies owning health maintenance organizations (HMOs). The provision’s mostly Republican supporters hoped that lifting this would increase competition and drive down consumer prices. That change led to Medica petitioning for the $90 million transfer.

But an overdue debate about lifting the ban got short shrift as lawmakers moved quickly to deliver consumer relief. In a recent interview with an editorial writer, Ehlinger criticized this measure’s hasty passage. He has a valid point. The Legislature, apparently realizing it moved too quickly, enacted a moratorium later in the session that the attorney general says “prohibits transfers of ‘all or a substantial portion’ of a nonprofit HMO’s assets to a for-profit corporation.”

Given Ehlinger’s criticism, it’s frustrating that his agency prematurely greenlighted the Medica request in early October even as the attorney general’s office was raising questions about the legality. Gov. Mark Dayton has also blasted the transfer’s approval.

It’s difficult to buy Ehlinger’s contentions that his agency had little choice but to approve the request because it deemed the $90 million not to be “substantial.” Ninety million is a substantial portion of the Medica nonprofit’s assets and it’s clearly intended for a for-profit operation. It’s further troubling that the Health Department declined to provide an editorial writer with the details of its legal reasoning for the approval.

It is important to note that Medica has done nothing wrong in seeking the transfer. A company executive argued that strengthening all of its lines of business benefits its home base — Minnesota. Fair point. Medica is a large employer and valued Minnesota company.

But given the large sums held in reserve by nonprofit insurers, the public also has a large stake in sorting through questions about transfers like this. Attorney General Lori Swanson has previously raised concerns in these pages about loose regulation of “for-profit conversions” leading to big executive payouts or other uses that fail to recognize taxpayers’ financial interest.

The Health Department, which oversees HMOs, gave its approval too soon. Reconsidering this decision would send a strong and welcome message: This agency has regulatory muscle and is willing to use it.