More than 425,000 poor or disabled Iowans will soon have to switch health insurance carriers.

UnitedHealthcare, which manages health care for more than two-thirds of Iowans on Medicaid, is leaving the market, Gov. Kim Reynolds’ office announced late Friday afternoon.

The departure, to come in the next few months, came after Iowa officials broke off contract negotiations due to what Reynolds termed "unreasonable and unsustainable" demands from UnitedHealthcare.

UnitedHealthcare was paid about $2 billion in federal and state money to manage Iowans' health care last fiscal year. It is the second Medicaid management company to bail out of Iowa since the state’s controversial decision to privatize its Medicaid system. AmeriHealth Caritas left the state in 2017 after complaining that it had lost hundreds of millions of dollars on the project.

The governor’s office said UnitedHealthcare members could continue seeing their health care providers as usual for the time being.

“We wanted to notify the public as soon as possible; however, that means we are still working out the details, including the timeline of the transition for UnitedHealthcare members,” the governor’s news release said. “UnitedHealthcare members will be sent notices providing a choice in managed care organizations."

They will be able to choose Amerigroup of Iowa or Iowa Total Care for their coverage.

Under managed care, states pay private companies set amounts of money per patient to oversee health care services. If the companies can reduce the need for care, they can make profits. If not, they lose money.

Proponents of private Medicaid management, including Reynolds, have said it can provide more efficient, effective care than public management offered. But critics, including many patient advocates and care-providing agencies, say it has led to service cuts and mounds of red tape.

Department of Human Services Director Jerry Foxhoven said UnitedHealthcare's contract runs through June, and the company is obligated to help make its current customers' transition to a new carrier smooth.

Foxhoven said in an interview that the main sticking point in negotiations was UnitedHealthcare wanted to be released from contract terms that would have denied them part of their state payments if they didn't meet quality goals. Among the goals could be paying bills from health care providers on time and reducing inappropriate use of expensive emergency room services, he said.

He added that UnitedHealthcare demanded those changes be made for the current fiscal year, which is three-quarters over. The company also wanted Iowa to guarantee it wouldn't lose money beyond a certain point, which the state was unwilling to do, he said.

Update: UnitedHealthcare denies split with Iowa Medicaid was due to dispute over performance payments

Foxhoven contended the fact the state refused to meet those demands, "shows that the system works. ... The fact that we're able to say, 'If you don't want to be accountable, this isn't the right state for you,' means it's a success. Being afraid to do that means you're giving up the integrity of the program."

UnitedHealthcare confirmed in a news release that it was leaving the state's Medicaid program, called "IA Health Link."

"We are honored to have served Iowans in the IA Health Link plan for the past three years, but persistent funding and program design challenges make it impossible for us to provide the quality care and service we believe people deserve," the company said. "Therefore, we will no longer be able to participate in the program and will work to ensure a smooth and seamless transition for all of our IA Health Link members.”

Democrats pounce

Democrats, who have long criticized Medicaid privatization, quickly pounced on Friday's announcement.



"It's time for Gov. Reynolds and GOP lawmakers to finally admit that Medicaid privatization is failing and it needs to be fixed immediately," Rep. Lisa Heddens, D-Ames, said in a news release. She is the ranking member of the House Health and Human Services Appropriations Subcommittee.

Sen. Zach Wahls, D-Coralville, tweeted: "This news confirms what hundreds of thousands of Iowans already know: Medicaid privatization has been a disaster from day one. It's time to end this failed experiment and put Medicaid back under state control."

Sen. Joe Bolkcom, D-Iowa City, called the situation “an absolute disaster” and said it’s time for the state to take back control of its Medicaid system. He said he was skeptical Reynolds has saved Iowa money in her negotiations with the companies managing the state’s Medicaid program, noting that the budget for the program has increased each year.

“I guess she thinks she’s negotiating a tough bargain as we’ve shoveled money into” the system, he said.

The Republican leader of the Iowa House said the Legislature will need to play a role in what happens next.

“I am incredibly disappointed that UnitedHealthcare will be leaving the Medicaid program, which may cause confusion for the thousands of Iowans that they serve," House Speaker Linda Upmeyer, R-Clear Lake, said in a statement. "It is unfortunate that UnitedHealthcare wanted more money for less oversight and accountability, which is unacceptable. I want to thank Gov. Reynolds for standing strong in her negotiations."



"We will monitor this situation carefully and help our constituents navigate the system during this transition," she said.

Foxhoven said he was confident his department could reach new contracts with the other two managed care companies. Amerigroup has been helping manage care for Iowa Medicaid members since the shift started in 2016. Iowa Total Care, which is a subsidiary of the giant health care company Centene, is slated to start serving Iowans July 1.

Foxhoven said he was unsure if the state would need to seek a third management company to replace UnitedHealthcare. He said Amerigroup and Iowa Total Care have assured state officials they can take on the 425,000 Iowans now assigned to UnitedHealthcare.

He said his department decided to announce the contract negotiation breakdown immediately, rather than wait and try to smooth out the transition as state officials did when AmeriHealth was leaving. Democrats ripped Foxhoven in 2017 for waiting until 30 days before AmeriHealth left to notify the public about the impending departure.

Foxhoven said the transition for former AmeriHealth members went better than critics predicted. "It went smoothly last time, and will go even more smoothly this time," he predicted.

This time, he said, Amerigroup and Centene will be ready to take on new members. Also, he said, there will be several months to make the change, as opposed to 30 days. "We have a longer runway," he said.

Sen. Mariannette Miller-Meeks, R-Ottumwa and chair of the Senate Human Resources Committee, said the Legislature may take up legislation to deal with the fallout.

“I’m sure there will be conversations about it Monday,” she said.

Register reporters Barbara Rodriguez and Stephen Gruber-Miller contributed to this report.