From Surplus to Shutdown: How UCare Fell in Two Years

The Brief

UCare, a nonprofit health organization that has been serving Minnesotans for over four decades, announced its closure in 2026. Initially established to provide health care coverage to low-income individuals through Medicaid, the organization faced significant financial and operational challenges in recent years. These challenges led to a series of losses and ultimately forced UCare to seek an acquisition by Medica, a larger health insurance company.

UCare's Decline

UCare was created more than 40 years ago with the primary goal of offering health care coverage to low-income policyholders relying on Medicaid. However, it struggled with rising healthcare costs, failed expansion efforts, and legal challenges. Despite initially reporting a $300 million surplus just two years ago, the organization saw a dramatic decline, eventually reporting net income losses of $102 million in 2023 and $478 million in 2024.

The decision to shut down came after UCare failed a financial trend test earlier this year, which triggered a turnaround plan with the Minnesota Department of Commerce. It is unclear if the Medica acquisition was part of this plan. The Commerce Department did not provide public information about the status of the turnaround plan.

Financial Struggles and Legal Challenges

In 2022, UCare reported a net income surplus of $325 million. However, the company acknowledged that this surplus was likely an outlier due to unique circumstances related to the pandemic. Despite taking steps to prepare for future financial impacts, the company faced unexpected losses.

UCare also faced legal challenges, including accusations of submitting incorrect diagnosis codes to the Center for Medicaid Services (CMS), resulting in millions of dollars in overpayments. An audit by the Office of Inspector General found that UCare submitted incorrect codes for diseases like cancer, stroke, and sepsis, even when those conditions were not diagnosed. This led to at least $4.7 million in overpayments through the Medicare Advantage program.

In response, UCare claimed the findings were "fundamentally flawed" and did not consider the number of underpayments. Following the audit, UCare terminated all of its Medicare Advantage contracts and began exploring opportunities to transition its members to a community-focused, nonprofit organization.

Expansion Failures

Before cutting thousands of Medicaid plans across Minnesota, UCare attempted to expand its Medicaid business to other states. The organization invested over $9 million to set up operations in Iowa and Kansas but failed to win bids to operate health plans in either state.

In Kansas, the insurance commissioner's office evaluated UCare’s bid and determined it was weak and lacked detailed strategies. UCare had only one strength and 19 weaknesses listed by the state. This failure coincided with a deterioration in UCare’s long-standing relationship with the University of Minnesota, according to court records.

The university, which originally 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. A lawsuit filed in 2022 accused UCare of retaliating by reducing the university’s influence and diverting its annual contribution to the University of Minnesota Foundation in 2022.

This 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.

Backstory and Legacy

UCare was created by the University of Minnesota in 1984 to help ensure low-income Medicaid recipients could continue to see their doctors. It 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, UCare made a controversial $30 million donation back to the state Department of Human Services in 2012, leading to congressional inquiries about how much federal money was flowing through HMOs like UCare.

Unlike other HMOs 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. However, the company recovered and re-entered the market.

By the end of 2022, UCare 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.

What's Next

UCare and Medica have 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.

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