How UCare went from massive surplus to shutting down in just two years

MINNEAPOLIS (FOX 9) - UCare was created more than 40 years ago primarily to offer health care coverage to low-income policyholders relying on Medicaid, but has struggled to navigate rising healthcare costs, failed expansion efforts and legal challenges.

UCare to shut down in 2026

What we know:

UCare is expected to shut down early next year once an acquisition plan is approved by state regulators.

As part of that plan, Medica will take over all of UCare’s remaining Medicaid, individual and family healthcare plans.

The announcement punctuates a stunning fall for a nonprofit that provided health care coverage to low–income Minnesotans relying on Medicaid for more than 40 years.

UCare declined to make anyone available for interviews after announcing the Medica acquisition. 

In just two years, UCare went from reporting a massive surplus and trying to expand its business to going out of business.

A FOX 9 Investigators review of financial records, court documents and regulatory filings details how the company struggled to navigate rising healthcare costs, failed expansion efforts and legal challenges.

UCare's struggle after massive surplus

By the numbers:

In 2022, UCare reported a net income surplus of $325 million.

UCare acknowledged the surplus was likely an outlier because of unique circumstances attributed to the pandemic.

But the company also reported to state regulators that it had taken steps to prepare for negative impacts in the future and had incorporated reasonable estimates in future pricing and projected financial performance, according to a 2022 financial filing.

"Such future impacts, while potentially significant and subject to change, are not expected to have a material impact on UCare’s financial position," the company stated.

Instead, the losses quickly piled up.

UCare reported net income losses of $102 million in 2023 and $478 million in 2024.

The company failed a financial trend test earlier this year, triggering a turnaround plan with the Minnesota Department of Commerce.

It’s not clear if the Medica acquisition was part of the state’s turnaround plan.

The Commerce Department said there is no public information to share when asked about the status of the turnaround plan.

"The demise of UCare comes as no surprise to those who have been watching Minnesota's Medical assistance program," said David Feinwachs, former general counsel for the Minnesota Hospitals Association, and a known critic of UCare. "What is surprising is the absence of involvement of state officials and regulators in this predictable misfortune."

UCare cuts and then collapses

Why you should care:

UCare started slashing plans across the state earlier this year when it cut Medicaid service for 88,000 policyholders across 11 counties. 

It also exited the Medicare Advantage market altogether. 

That decision came less than a year after UCare was accused of submitting incorrect diagnosis codes to the Center for Medicaid Services (CMS), resulting in millions of dollars in overpayments, according to a 2024 audit by the Office of Inspector General.

In more than 250 cases, UCare either could not locate supporting medical records or provided records that "did not support the diagnosis codes."

UCare repeatedly submitted incorrect codes for diseases like cancer, stroke and sepsis even though those diseases were not actually diagnosed, according to the audit.

UCare received at least $4.7 million in overpayments through the Medicare Advantage program.

In response, UCare said the findings were "fundamentally flawed" and did not take into consideration the number of underpayments.

It terminated all of its Medicare Advantage contracts months later.

After doing so, UCare began "exploring opportunities to transition its members to a community-focused, nonprofit organization with aligned missions," the company said in a press release.

UCare tried and failed to expand

Dig deeper:

Before dumping thousands of Medicaid plans across Minnesota, UCare tried expanding its Medicaid business to other states.

It invested more than $9 million to set up shop in Iowa and Kansas in recent years, but failed to win bids to operate health plans in either.

In Kansas, the insurance commissioner's office evaluated UCare’s bid and determined it was weak and lacking detail.

While most companies received a mix of strengths and weaknesses in their evaluations, UCare had only one strength and 19 weaknesses listed by the state.

Kansas found UCare’s plan included limited information or "lacked detailed strategies" about how it would operate.

Timeline:

UCare’s expansion efforts failed around the same time that UCare’s long-standing relationship with the University of Minnesota began to deteriorate, according to court records.

The university, which created UCare in the 1980s, denied UCare’s previous expansion and merger efforts because they did not "ensure the continuity of UCare’s mission to serve the state of Minnesota," according to a lawsuit filed in 2022.

In that lawsuit, UCare was accused of retaliating by "reducing the university’s influence."

UCare was also accused of diverting its annual contribution to the University of Minnesota Foundation in 2022, the same year it reported a surplus of more than $300 million.

"UCare sought to divert funds away from the Department… to retaliate against the University…" the lawsuit stated.

The lawsuit was eventually settled when UCare agreed to pay $100 million to fund a three-year collaboration with the University of Minnesota Medical School to advance community and health wellness initiatives.

The backstory:

UCare was created by the University of Minnesota in 1984 to help ensure low-income Medicaid recipients would be able to continue to see their doctors.

UCare became a Health Maintenance Organization (HMO) a few years later and has operated as such ever since.

At its revenue peak in 2022, UCare was certified to operate in 79 counties, with most enrollment in the Twin Cities metro.

It currently provides health care and administrative services to more than 300,000 members throughout Minnesota and parts of Western Wisconsin. 

The company received billions of dollars from the state and federal governments for serving people through Medicaid and Medicare Advantage.

In fact, the company took in so much funding that it actually made a controversial $30 million donation back to the state Department of Human Services in 2012. That led to congressional inquiries and questions about how much federal money was flowing through Minnesota and into HMO’s like UCare.

"Since these companies were operating as nonprofits, they essentially took their profits by increasing their reserves and paying their employees large bonuses," a congressional report stated in 2012.

Unlike other HMO’s operating in Minnesota, UCare rarely expanded its business outside of Medicaid.

This nearly proved catastrophic when it unexpectedly lost Minnesota’s Medicaid contracts in 2015.

But the company recovered and re-entered the market.

By the end of 2022, the company reported taking in hundreds of millions of dollars in surplus revenue and was preparing to expand to other states.

Now, it’s shutting down for good.

"The most important questions remain unanswered," Feinwachs said in an email. "How and why did this happen?"

What's next:

UCare and Medica stated they are "committed to providing a seamless experience" for UCare’s remaining policyholders.

"Individuals enrolled in UCare’s 2026 Medicaid and Individual and Family Plans will continue to receive services without interruption," the release stated. 

Providers or members with questions are encouraged to visit Medica.com or UCare.org for more information.

InvestigatorsHealth Care