Meridian, the state's largest Medicaid HMO with 455,000 members in 2015, has enjoyed a good two-year growth run, moving into new headquarters in downtown Detroit and adding more than 1,000 new employees.
The HMO also increased its underwriting income 315 percent to $27 million last year from $6.5 million in 2013. Underwriting margins rose to 1.3 percent last year from 1 percent in 2014 and 0.6 percent in 2013.
But in 2015, underwriting income rose more slowly to $14.3 million because medical expenses started to rise more quickly than the previous year, Meridian COO Jon Cotton said.
"It is definitely better (income) than we expected," said Cotton, noting that the premium rates have been fair the past two years.
Like all HMOs, Meridian's medical expenses increased the past two years — 13 percent to $321 per member per month last year from $283 in 2014.
"(Healthy Michigan) population never had insurance ...," Cotton said. "We had no idea what their medical costs and needs would be."
Cotton said the increase in medical expenses not only reflected costs associated from a somewhat sicker Healthy Michigan population, but also from other populations many of the plans absorbed during the past several years.
Aside from the 142,000 Healthy Michigan members, Meridian added nearly 50,000 members that included TANF, or temporary assistance for needy families, which are mostly single moms with babies; aged, blind and patients with disabilities, known as ABD; and children with essential health needs, Cotton said.
But Cotton said once Meridian started adding thousands of Healthy Michigan members and the health risk assessment tests started coming back, "we saw much more prevalence of chronic conditions — diabetes, heart disease, asthma and behavioral health issues — than we expected."
However, "once the costs came in it was much lower than we thought … , Cotton said. "It makes a big difference if someone has diabetes and you get them under control, on insulin, they never had before."
One reason costs may have risen more quickly at Meridian, said Cotton, is that it uses a variety of software programs that measure future medical needs of its population.
"We use predictive modeling on each patient and try to get them services to prevent them from developing into a more severe case," Cotton said. "It probably costs more up front, but we avoid costs using these predictive tools," he said.
Meridian is one of at least five HMOs — including Molina — that will be required to repay the state for overpayments it received based on "risk-corridor" provisions in the Medicaid contract.
Cotton said the plan will write a check to the state for $3.6 million because its patients were less sick and less expensive than predicted from April 2014 to April 2015.
Molina, which is the second-largest Medicaid HMO with 327,000 members, also is on the hook to repay the state about $8.5 million under the risk corridor contracts.
Despite Molina's medical expenses increasing 23 percent to $312 per member per month in 2015 from $254 per member per month in 2013, Molina was able to increase its Medicaid underwriting income 222 percent to $81.9 million in 2015 from $25.4 million in 2013.
"Molina has a very strong clinical program, and we certainly are dedicated toward taking care of this population," said Christine Surdock, Molina Michigan's CEO.
She said profit margins have fluctuated over the years. "Any success we might have right now is (targeted toward) improving quality and cost effectiveness," Surdock said.
While the Healthy Michigan population required more medical services than traditional Medicaid, Surdock said use was lower than projected, especially in 2015.
"There was pent-up demand. We tried to get those members to see their physician as opposed to the ER," she said.
At Priority Health, medical expenses for the Medicaid population rose 15 percent, lower than the industry trend of 20 percent, to $295 per member per month in 2015 from $257 in 2013.
"We did anticipate that the Healthy Michigan population would be higher cost and higher utilization" because they are adults and not mothers and children, said Guy Gauthier, Priority's senior director of government programs. "We were pretty conservative in how we recorded operations during first year, even into 2015."
Harbor Health's Shafa said Healthy Michigan patients sometimes require complex treatment because their previous lack of access to affordable care created bigger problems.
"As we are able to address the underlying problem, ongoing care and health often becomes less expensive to maintain," Shafa said. "As more people have access to health care, we also expect to see an improvement in general health, and a move toward enhanced population health."
