The 2023 Legislature passed a bill HF 402 that directs MDH to complete a study and make recommendations on the conversion of Minnesota-based nonprofit Health Maintenance Organizations to for-profit status. The language requires MDH to produce preliminary and final reports that cover a range of issues including recommended oversight for conversions (which agency or entity, role of public input into the process, stewardship of public benefit assets), regulation of for-profit HMO’s post-conversion, and the regulatory structure needed to manage any potential return of public benefit assets to the state general fund if a nonprofit HMO or health system converts to for-profit or is purchased by an out-of-state or for-profit entity. The study resulted in two reports to the Legislature.

Preliminary Report to the Legislature

A large focus of the first phase of the study was focused on gathering information from the public and key informants regarding their recommendations, concerns, and interest in how transactions should be regulated in Minnesota. Input was provided through:

Written comments submitted in response to a Request for Information (RFI): from October 2nd to November 15th.
A Public Listening session: Webex Meeting held on November 15, 2023, from 6:00 pm - 7:30 pm.
Several interviews with local and national key informants.

Below is the preliminary report produced at the end of the first phase of this HMO conversion study.

Study of HMO Conversions - Preliminary Report to the MN Legislature, 2024 (PDF)

Final Report to the Legislature

The final report for the study reflects changes to statutes regarding Minnesota HMOs during the 2024 legislative session, and additional research on how other states regulate large-scale transactions involving HMOs and insurance companies. The report makes four recommendations related to future HMO regulation and oversight. Below is the final report for the HMO conversion study.

Study of HMO Conversions – Final Report to the MN Legislature, 2024 (PDF)

General information about HMOs

A Health Maintenance Organization (HMO) is a common type of health insurance plan that usually coordinates health services within a specific provider network. Some HMOs require that you choose a primary care provider, and don’t cover health services out-of-network (except in an emergency), while others are more flexible. HMOs often provide integrated care and focus on prevention and wellness. An HMO provides comprehensive health maintenance services, or arranges for the provision of these services, to enrollees based on a fixed prepaid sum without regard to the frequency or extent of services furnished to an individual enrollee, aside from copays or deductibles.

Historically, Minnesota HMOs were required to be nonprofit corporations. The law changed in 2017 to allow for-profit HMOs to be licensed in Minnesota. When the law passed, a moratorium was placed on nonprofit HMOs converting to a for-profit. The moratorium is set to expire June 30, 2026. Currently, there are seven nonprofit HMOs and three for-profit HMOs operating in Minnesota.

HMOs use a defined network of providers such as physicians, hospitals, and other health care professionals with which they have negotiated coverage prices beforehand in exchange for inclusion in the network, or because they are owned by the HMO.

In Minnesota, HMOs and insurance companies offer plans in the individual, small group, and large group markets. However, only HMOs and county-based purchasers can contract with DHS to provide coverage for public program recipients. Another distinction is that MDH conducts quality assurance examinations of HMOs every three years, and HMOs must file annual quality program descriptions with the Department.

In 2021, 27.1% of Minnesotans had health insurance coverage through HMOs. This is an increase from prior years, where approximately 22.0%-24.9% of Minnesotans were covered by HMOs (2017-2020). The cause of the increase was due to the COVID-19 pandemic, which made it easier for Minnesotans to maintain coverage in Medical Assistance (Minnesota’s Medicaid program) and MinnesotaCare (from the continuous enrollment provision). It is expected the HMO market share will decrease with the end of the continuous enrollment provision.

2021 enrollment by each market type is as follows:

Commercial: 225,219 (6.9% of all enrollment)
Medical Assistance: 1,018,088 (81.5% of all Medical Assistance enrollment)
MinnesotaCare: 99,206 (98.6% of all MinnesotaCare enrollment)
Medicare: 184,025 (17.2% of all Medicare Advantage or MedicareCost enrollment)
Minnesotans with health insurance coverage from HMOs: 1,546,944

For more detail on Minnesota HMO financials and enrollment, see Minnesota Health Care Markets Chartbook, Section 7

Assets come from premiums from products sold and investment earnings by an insurance company; generally, they are not reported by product type. These assets can broadly be classified into bonds, stocks, real estate and mortgages, receivables, and other items; the assets each HMO has varies within their annual insurance reporting.

Minnesota Statutes 62D.044 defines Admitted Assets in greater detail. All net earnings, also called net income or net profit, from a non-profit HMO must be devoted to providing comprehensive health care.

HMOs, like all health insurance companies, are required to have assets available in capital reserves. Capital reserves are generated by health plan companies through net income (profits) and investment gains over time. The primary purpose of requiring a minimal level of capital reserves is to ensure financial solvency. This means that health plans are financially positioned to meet obligations towards their members, even when unanticipated losses occur. Capital reserves are also used to make investments in infrastructure, fund growth in existing and new markets, support health care access programs and meet other business goals.

Feel free to email any questions about this study, to health.mcs@state.mn.us.