The health insurance arm of Detroit-based Henry Ford Health System may divest a large portion of its profitable Medicaid plan after Michigan health officials decided to reject the system's protest of newly awarded managed-care contracts.
HAP Midwest Health Plan, a subsidiary of Henry Ford's Health Alliance Plan, “intends on selling its Medicaid membership for affected regions to another health plan” if the state does not reverse its decision, the system said in a financial disclosure (PDF) this week. The state met Tuesday and denied Henry Ford's appeal.
In October, the Michigan Department of Health and Human Services, which administers the Medicaid program for the state's 1.7 million poor residents, announced the winners of the $42 billion program. Each insurer is paid a monthly capitated amount to care for Medicaid beneficiaries in designated areas. HAP Midwest retained one contract covering 1,000 patients but lost its Medicaid contracts in the two populous regions surrounding Detroit.
HAP Midwest covers 88,000 Medicaid patients in those two regions, a vast majority of the plan's membership. Executives immediately filed a protest after the decision, which was denied.
The health plan asked for a reconsideration of its protest soon after, which was turned down Tuesday. The decision is a huge financial blow to the system. In the first nine months of 2015, HAP Midwest posted a $20.1 million surplus, representing roughly a fifth of Henry Ford's overall $104 million surplus (PDF).
“We are extremely disappointed in the state's decision,” Henry Ford President Wright Lassiter said in a statement. “We believe this is a huge disservice to the 88,000 HAP Midwest members whose healthcare will soon be disrupted with no substantial reason. HAP Midwest has had an exemplary record of service to its members for the last 35 years. We are considering every available option because we remain committed to serving this population.”
Multiple parties have signaled interest in buying HAP Midwest's Medicaid business, but the system would not disclose those companies, a Henry Ford spokeswoman said.
Michigan's Medicaid program has been run by managed-care companies since the 1990s. When the state expanded Medicaid to thousands of other low-income residents under the Affordable Care Act, it became that much more attractive to both new and incumbent companies, said Marianne Udow-Phillips, director of the Center for Healthcare Research and Transformation at the University of Michigan.
“Because there have been many health plans that have been in the Medicaid business a long time, they've been able to figure out how to manage this complex population and make money in the process,” Udow-Phillips said.
Although health plans like HAP Midwest argue that moving members to a new insurer and potentially new doctors and hospitals could disrupt effective care management, states are looking to keep Medicaid costs in check.
“The state realizes there's a lot of competitive interest, so they can bid this business and save money,” Udow-Phillips said. She added that states are doing a better job of making sure insurers aren't skimping on care for their members by measuring quality metrics and consumer surveys.
HAP Midwest's parent, Health Alliance Plan, has a large presence in Southeast Michigan. The plan covers about 690,000 people, many of whom work for the area's automobile companies. HAP recently agreed to acquire HealthPlus of Michigan, a financially distressed insurer. That deal will add 17,000 Medicare Advantage members and 40,000 commercial members. While HealthPlus won't help Henry Ford's bottom line immediately, executives said it will “become substantially accretive over time.”
Henry Ford's total revenue for the first nine months of this year reached $3.77 billion, an 8.8% jump from the same period a year ago. Almost half of the revenue came from health insurance premiums and capitated payments.
