For-Profit HMOs: Minnesota Is Posed to Fall Into a Trap

(as published in the Star Tribune)

In 1996, management of a non-profit health plan in Ohio agreed to sell it to the for-profit Columbia/HCA. The for-profit would pay the non-profit executives a $19 million "consulting fee." The for-profit also paid $3.9 million in "consulting fees" to the seven non-profit 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 non-profit.

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 non-profit 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 I 0,000%.

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 non-profit 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 non-profit 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 non-profit 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 non-profit 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  non-profit  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 non-profit health insurance plans in Minnesota. And there should be no surprise when the non-profit health insurance executives-acting under the cover of the "delete all" legislation-once again fleece the policyholders, taxpayers, and the public.

I hope the Governor vetoes this troubling "delete all" legislation.