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Medicaid is rarely associated with getting rich. The patients are poor, the budgets tight and payments to doctors often paltry.

But some insurance companies are reaping spectacular profits off the taxpayer-funded program in California, even when the state finds that patient care is subpar.

Health Net, a unit of Centene Corp., the largest Medicaid insurer nationwide, raked in $1.1 billion in profit from 2014 to 2016, according to state data obtained by Kaiser Health News. Anthem, another industry giant, turned a profit of $549 million from California's Medicaid program in the same period.

Overall, Medicaid insurers in the Golden State made $5.4 billion in profits from 2014 to 2016, in part because the state paid higher rates during the inaugural years of the nation’s Medicaid expansion under the Affordable Care Act, or Obamacare. Last year, they made more money than all Medicaid insurers combined in 34 other states with managed care plans.

"Those profits are gigantic — wow," said Glenn Melnick, a health economist and professor at USC.
Alan Sager, a health-policy professor at Boston University, was surprised — and dismayed.

"California is being wildly open handed and excessively generous with insurers," he said.
Jennifer Kent, California's Medicaid director, said that health plan profits were higher than anticipated during the ACA expansion. But she said the state expects to recoup a significant amount of money within the next year once audits are complete and other retroactive rate adjustments are made.

"We're going to be taking a lot of money back. We're talking billions of dollars," Kent said in an interview Friday. No one should think "these plans just made off like bandits and we're not going to see them again ... We are very mindful we use taxpayer money."

Health insurers that profited substantially from Medicaid, known as Medi-Cal in California, defend their good fortune. They say these surpluses follow losses in earlier years, and they always run the risk of red ink if medical costs jump.

"The expansion may have been a little rich in the beginning," said Jeff Myers, chief executive of the Medicaid Health Plans of America, an industry trade group. But "you are starting to see margins come back down."

More than 1 in 3 Californians, or 13.5 million people, are covered by Medicaid — more than the population of Pennsylvania. About 80% of those in California's program are enrolled in a managed-care plan, in which insurers receive a fixed rate per person to handle their medical care. The goal is to control costs and better coordinate care.

In anticipation of the Obamacare rollout, officials in California and elsewhere boosted their payments to managed-care companies because they expected Medicaid costs to increase as newly insured patients rushed to the doctor or emergency room after going years without coverage. But those sharply higher costs didn't materialize — and insurers pocketed more money as a result, especially in California.

Moreover, California's payments keep flowing steadily even when patients fare poorly. Two of the most profitable insurers in California — Centene and Anthem — run some of the worst-performing Medicaid plans, according to medical quality scores and complaints in government records.

"If there is that much extra money sloshing around in California, then it's worth asking whether you could expect more in terms of performance," said Andy Schneider, a research professor with Georgetown University's Center for Children and Families.

California officials acknowledge they need to do a better job of connecting money and quality.
"We are looking at alternative payment methods and those types of things that we can do to help improve and to tie quality to payment," said Lindy Harrington, a deputy director at the California Department of Health Care Services, which runs Medi-Cal. "But as you can imagine, it's a difficult ship to turn."