PO Box 9310

Minneapolis, MN 55440-9310
952-992-2900

MEDICA

November 30,2016
Ms. Marie Zimmerman
Medicaid Director
Minnesota Department of Human Services
540 Cedar Street
St. Paul, MN 55105
Dear Ms. Zimmerman:

Medica is proud of our history of serving low-income Minnesotans through the Prepaid Medical
Assistance (PMAP) and MinnesotaCare programs. We have been a partner with the Department
of Human Services (DHS) in serving PMAP and MinnesotaCare members for over 30 years; we
have a long history of bringing innovative care delivery and exceptional service to this
population.
We have always operated with the best interests of the program and the enrollees we serve in
mind. In 2003 Medica voluntarily returned one month of payments to the State of Minnesota
because we felt our earnings for the year were greater than we had budgeted. In 2011 Medica
voluntarily agreed to cap our earning for one year at one percent because of concerns from
Governor Dayton and others that margins had been too high in preceding years. In 2016 Medica
voluntarily agreed to forgo our status as the default carrier in parts of Hennepin County to aid in
the sustainability of another MCO. These are just a few examples of Medica's efforts to put the
needs of the state Medicaid program first. We approached negotiations for a 2017 contract with
the goal of building on our partnership to serve the best interests of Minnesota Medicaid
enrollees.
The Prepaid Medical Assistance and MinnesotaCare programs are not currently working,
because the current rates are simply not actuarially sound. Changes in the PMAP and
MinnesotaCare programs since the passage of the Affordable Care Act have dramatically
impacted the size and makeup of the covered population. The population Medica serves in 2016
is dramatically different than the population we served and bid upon in 2014 and 2015. These
changes, coupled with the Department of Human Services struggles to properly manage
enrollment accurately and consistently over the last three years, has fueled unparalleled losses in
Minnesota's Medicaid program for Managed Care Organizations in 2016.
The stability of these programs requires that rates to Managed Care Organizations be developed
that are actuarially sound and adequate to cover the cost of the populations served. This means
recognizing that the current population served by these programs is significantly different than it
was in 2014 and 2015, and that current program experience must be used in the development of
rates for 2017. DHS has chosen a rate development process that ignores the reality of this
changing population. As a result the rates offered to Medica for the PMAP and MinnesotaCare
programs for 2017 come nowhere close to covering what it will actually cost to administer those
programs.
Medica is a registered service mark of Medica Health Plans. "Medica" refers to the family of health plan businessesthat includes Medica
Health Plans, Medica Health Plansof Wisconsin, Medica Insurance Company, Medica Self-Insured and Medica Health Management, LLC.

COR1709-5-01212

An Equal Opportunity Employer

Medica losses for the PMAP and MinnesotaCare programs in 2016 will exceed $150 million by
year end. This one year of losses will exceed any earnings in this business since 2005 and will
diminish Medica's reserves to unstable levels. The rates proposed by DHS for the 2017 Families
and Children Contract would result in a projected loss of another $100 million. These rates are
in no way sustainable and we cannot subject the more than one million Minnesotans covered by
Medica in other programs to additional instability by accepting them. If we were to sign the
contract we have been offered for 2017, it would be an implicit acknowledgment that the rates
were actuarially sound. In good conscience, we cannot do that.
Medica has brought forward a number of potential solutions to resolve the impasse of our
negotiations, including an offer to administer the program at cost (no margin) and/or at a two
percent loss for 2017. The Department has been unwilling to accept any of our proposals. The
simplest solution would be to use all of the information you have available in the development of
rates for 2017. The Department requested and received information on 2016 market
performance from every MCO administering these programs. That information was requested
for the sole purpose of rate development and was delivered to the Department today. Surely the
use of more timely and accurate information would only help to provide the soundest rates for
the 2017 plan year. We don't understand why the Department seems intent on ignoring
important information that is now in your possession to set rates for the programs you manage
for Minnesotans. If the purpose is to underfund these programs in the coming year, the
Department is risking the collapse of the entire Medicaid market.
Because the State has been unwilling to consider appropriate information in the rate development
process and has therefore failed to produce actuarially sound rates for the 2017 Families and
Children Program, I deeply regret to inform you that Medica is providing Notice of NonRenewal of the 2016 DHS Families and Children Contract, in accordance with Section 5.2.1 of
the contract. Pursuant to the terms of the contract this non-renewal is effective April 30, 2017.
Medica does not believe that this action precludes further negotiations, and we remain committed
to finding a solution to this impasse if one can be found. In that spirit we again offer any of the
following as terms that would be agreeable to Medica and would allow us to sign a 2017
Families and Children Contract:

An amendment to the proposed rates that includes a material adjustment (3% or higher)
to the morbidity factor used in rate setting based upon 2016 experience.

Offering Medica the same rates offered to Blue Plus in the following regions; Hennepin
County, Metro Region, South Region

An amendment to the contract that would allow Medica to administer the program in
2017 within an operating margin corridor of no less than -2% and no more than 0%

A reduction in Medica's service area for the Families and Children Program to the
Hennepin and North Regions (pre-2016 regions) effective on or before July 1,2017.

We realize the Department has taken the position that they cannot negotiate with us for a 2017
contract while a Notice of Non-renewal is in place. We hope you would reconsider your

position. If you maintain your position that no further negotiations are possible, please contact
me at your earliest convenience so that we can begin the process of a smooth transition for the
310,000 PMAP and MNCare members currently served by Medica to another Mca before May
1,2017.
Medica remains committed to serving our members throughout this process and to limit
disruption as much as possible for the members we have been so fortunate to serve.

Sincerely,

Geoff Bartsh
VP and GM State Public Programs

Cc:

Chuck Johnson
Nathan Moracco
Lauren Gilchrist