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Any hope that UCare would remain a major provider of state-subsidized health insurance took a hit Thursday when state regulators, after reviewing appeals by 25 counties, restored it as a health insurer in only one.

A new competitive bidding process launched by the Dayton administration shocked many observers this year when it eliminated UCare as a provider of coverage through the state’s Medical Assistance and MinnesotaCare programs for 2016. But 28 counties exercised an option to challenge the bid results and seek additional or different plans for their poor and disabled residents.

Fourteen of the counties won modifications to the bidding results, the state announced Thursday, but only Olmsted County received permission to add UCare as a potential third insurer. St. Louis and Wright counties were permitted to negotiate with Medica as a potential third provider as well.

In another 11 counties, including Ramsey County, the state said the insurance options would remain the same.

Adding choices in counties needs to be done carefully, because it weakens the state’s ability to strike a good bargain with a smaller number of insurers, said Human Services Commissioner Lucinda Jesson.

“This is really premised on trying to drive a better value for taxpayers,” Jesson said. “If everyone gets the business in every county, then there’s not the incentive for health plans to give us their very best offer.”

UCare is Minnesota’s largest provider of plans for patients enrolled in Medical Assistance and MinnesotaCare; more than half its $3 billion in annual revenues has come from that business.

The insurer sued Minnesota after losing out in the competition, arguing that bidding was tainted and that the loss of revenue would cripple its operations and force the layoff of as many as half of its 900 workers.

UCare had pinned some hope on the county appeals, especially in Ramsey County, where in September it was serving more than half the county’s 110,000 public program enrollees.

UCare currently provides Medical Assistance or MinnesotaCare plans to 16,000 people in Olmsted County.

“We are assessing the business impact of remaining as a … provider in only one county next year,” a UCare statement read.

Gov. Mark Dayton and other state officials lauded the bidding process, and estimated that it will save Minnesota taxpayers $173 million next year.

In Hennepin and other counties that didn’t appeal, Minnesotans were already able to choose providers for Medical Assistance, which covers people living in poverty, or for MinnesotaCare, which covers the working poor.

Under competitive bidding, the top three health plans were initially selected in urban Twin Cities counties and the top two bidders were selected in other counties.

Adding a third provider in Olmsted, St. Louis and Wright counties was recommended by a three-person mediation panel because larger counties would benefit from an additional choice, Jesson said. In 11 mostly south-central Minnesota counties, the second-place finisher in the bidding process was replaced, at the recommendation of the mediation panel, by South Country Health Alliance. The county-based collaboration would have folded without the change, Jesson said.

The fate of UCare remains unclear, though its business providing federal Medicare plans and smaller state programs for senior citizens will be unaffected. At a hearing in early November, a judge is scheduled to consider the insurer’s arguments that the state bidding process was unfair and tipped competitors to financial information that allowed them to make superior bids.

Jeremy Olson • 612-673-7744