Michigan’s Medicaid HMOs earn highest profits in decade

Karen Bouffard
The Detroit News

The state’s Medicaid HMOs defied predictions they’d lose money on the Healthy Michigan Plan, Michigan’s expanded Medicaid program, earning its highest profits in more than a decade last year, according to a new report.

Michigan HMOs’ combined net income totaled $331 million in 2015, according to the Michigan Health Market Review, released Wednesday. The industry’s 2014 net income was $170 million. The decade’s previous high water mark was 2012 when net income for HMOs totaled $311 million.

Minnesota-based health industry analyst Allan Baumgarten, the report’s author, said profits were boosted by greater-than-expected enrollment in Healthy Michigan, combined with increased reimbursement rates paid to HMOs for their Healthy Michigan clients. More than 600,000 people enrolled in the expanded Medicaid program within a year of its 2014 launch.

“The state, anticipating (Healthy Michigan clients) might have pent up demand for medical care, set the rates for that Healthy Michigan population higher than the rates for the traditional ‘moms and kids’ population,” Baumgarten said.

Payments to Medicaid plans increased by 31.9 percent from 2013 to 2015, while medical expenses grew by 19.8 percent, according to the report. The state plans to rollback Healthy Michigan reimbursement rates to match the amount paid for traditional Medicaid enrollees, and has billed back HMOs for a small portion of the bonanza.

“A lot of states, without data about the new population, made some assumptions that they were going to be higher utilizers than the average, so they built in an extra payment anticipating that these people would be using more care. It turns out they didn’t,” Baumgarten said.

“Medicaid is now 50 percent of the HMO enrollment in the state and basically has accounted for almost all of the growth in HMO enrollment over the last three to five years.”

Jennifer Eisner, spokeswoman for the Michigan Department of Health and Human Services, said the rates are higher for the Healthy Michigan Plan because the plans are required to offer more services than traditional Medicaid plans, such as dental coverage.

Medicaid plans had underwriting income of $298 million in 2015 and a 3.9 percent margin, compared with $161 million with a 2.8 percent margin in 2014.

Baumgarten will publish the report’s second part on hospital profitability and utilization in Michigan later this year.