On Jan. 1, Minnetonka-based health plan provider Medica suddenly gained approximately 300,000 new members. This massive influx came with the well-publicized collapse of UCare, another Minnesota-based nonprofit health insurer, which went into receivership. Medica acquired holders of UCare’s Medicare, Medicaid, and individual and family plans. Before the acquisition, Medica had 1.4 million members across nine states. (About 68% of its members reside in Minnesota.) As a result, UCare plan holders increased Medica’s membership by more than 20%.

It was a challenge unique to Medica. But it’s also facing other pressures, ones that all health insurers are struggling with.

This month, Medica filed its 2025 financial results with the National Association of Insurance Commissioners (NAIC) and regulators within the states in which it operates. On one hand, its total revenue increased by more than $900 million year over year to $7.3 billion, driven primarily by Medicaid membership shifts across Minnesota. It also posted an operating loss of $193 million. That’s an improvement over the company’s $216 million deficit in 2024 on $6.3 billion in revenue. Medica credits this improvement to disciplined expense management even as its membership grew. That noted, Medica posted an operating profit of $51 million the year before. (Other insurers are experiencing similar stresses: Blue Cross Blue Shield of Minnesota reported a $353 million operating loss for 2025.)

Numerous cost pressures are weighing down on health insurers. Now Medica is charting a way forward through the complications of the current health care market.

A rough road

Absorbing all those UCare members has been one of Medica’s easiest challenges. “We were actually positioned pretty well to take on this membership,” Medica president and CEO Lisa Erickson says. She notes that the two companies had similar missions and cultures, which helped smooth the way for many former UCare employees to join Medica’s headcount.

Erickson and her team looked upon the UCare acquisition “as another part of our transformation roadmap”—the five-year strategic plan that Erickson and Medica embarked upon at the beginning of last year.

Medica drew up that map in large part because of the more daunting challenges looming over all health insurers.

“Top of mind for us are the cost trends, which are the highest they’ve been in 15 years or so,” Erickson says. The suspension of the American Care Act’s enhanced subsidies “will probably cause anywhere from 20% to 25% reduction in membership” due to the unaffordability of health care and insurance. At the same time, “we have people with greater health needs staying in the market and needing insurance.” That drives up the costs of all insured people. Indeed, Minnesota residents are experiencing breathtaking leaps in their monthly insurance premiums.

The passage of the federal “Big Beautiful Bill” will also have ongoing cost implications, particularly for Medicaid. The Minnesota Hospital Association projects that this legislation could cost Minnesota hospitals between $700 million and $1.5 billion in annual net revenue. State hospitals could also face an additional shortfall of $320 million to $580 million per year in Medicaid financing. Minnesota Department of Human Services data recently reported in the Minnesota Reformer showed that spending across 14 Medicaid programs in the state increased from $2.06 billion in 2021 to $4.32 billion in 2025.

These increasing cost pressures require Medica “to be adaptable, flexible, and scalable,” Erickson says.

Seeking new efficiencies

Medica’s five-year plan isn’t meant to bring radical change to its operations. “We haven’t taken a hard right turn on our mission,” Erickson says. “It’s really about how to invest to better bring that mission to life.”

One of the five-year plan’s key elements is increased investment in foundational systems and technology. The other is continued investment in data analytics along with expanded connectivity with health care providers. Medica also is looking at ways to incorporate AI to streamline interactions with members, such as answering questions about coverage. The goals include improved health outcomes and member experience.

In addition to the cost of care, a complaint many patients express about health care is its bureaucratic complexity. This is something Erickson freely acknowledges.

“Like many health plans, we have different organizations that have come together,” she says. Three years ago, for instance, Medica entered into a joint venture with Wisconsin-based Dean Health Plan in Wisconsin. UCare also had its own patient-service platforms. The result is “a proliferation of systems, and that creates complexity,” Erickson says. “And that can introduce the possibility of errors, which isn’t what we want. The more we can consolidate and streamline the systems, the better we are from a flexibility and stability standpoint.”

“We know that the member experience is complicated—health care is complicated,” Erickson adds. “We are striving to make it a simpler experience. We can do that by communicating in plain English, making it easier for members to get answers in whatever format they choose to use on our contact center, then getting the right kind of care.”

Erickson says Medica also is developing “ways to connect with providers so that we can make all of the transactions between the two parties much more seamless.” Accordingly, “one of the goals of our member focus is not giving our members homework—not putting them in the middle.” Medica can accomplish much of this, she adds, by streamlining processes such as prior authorizations. Much of this can be done “by investments in connections with providers,” including more real-time communication, to speed up response times and reduce administrative slowdowns.

Like some other insurers, Medica provides navigators who can guide members with complex needs, such as cancer and comorbidities, through the care system. It now is pursuing plans to ramp up these services. One approach is by “bundling complex care situations,” Erickson says. Medica is developing care pathways in coordination with oncologists and other providers to reduce the number of pre-approvals needed.

Erickson also cites the example of a Medicare patient who makes frequent visits to the emergency room. “That’s costing the system a significant amount of money, and that patient isn’t getting the best care,” she says. Navigating that patient through the system to receive the right care early could reduce those costs while delivering better health outcomes.

Reinvesting and reinventing

Can Medica avoid the pitfalls that doomed UCare? The two organizations have similar histories. Medica was launched in 1975 as Physicians Health Plan, rebranding in 1991. UCare was founded in 1984 by University of Minnesota family medicine physicians to provide care access to Medicaid patients.

As Erickson notes, UCare’s business came primarily from Medicare, Medicaid, and individual markets. But Medica also has a large book of commercial business, which helps provide more stability, she says. This can also help Medica make the investments needed to avoid UCare’s fate.

Erickson also observes that Medicare has become “a very difficult business line” for health plan providers. “We’re in a cycle where costs have been going up and where CMS [the federal Centers for Medicare and Medicaid Services] is tightening up some of the areas that are important to plans’ sustainability, such as the quality ratings and their risk adjustment,” she says.

The ongoing uncertainties and unpredictability of the Medicare market “had a big impact on UCare, given the size of their Medicare population,” Erickson says. “It had a big impact on us, too.” Medica is now putting together proposed Medicare plan rates for 2027 that it hopes are affordable for members while still being financially sustainable for the insurer.

Many health plans have sought to put in place patient-centered strategies and efficiencies that are central to Medica’s five-year transformation plan. Won’t ambitious plans for technological improvements and added member services actually drive up its costs?

“We have to be cognizant of that as we pursue our investment strategy,” Erickson acknowledges. “We do have the benefit as a nonprofit, non-public company to be able to take the longer-term perspective.” Ultimately, she adds, “we’re investing in simplifying, streamlining, and automating. We’re taking out duplication, we’re taking out overlap, we’re taking out waste and error. And when we do that, that can drive cost savings.” Those cost reductions, Erickson believes, “give us the opportunity to reinvest in other places.”