HMOs
profiting from higher premiums
NEW YORK (AP)--After years of anemic stock growth and flat earnings, HMOs are starting to please Wall Street again - and they are doing it by raising premiums.
By raising premiums and squeezing reimbursement rates to doctors and hospitals, the nation's largest health maintenance organizations increased profits in the fourth quarter. Aetna-U.S. Healthcare, United Healthcare and PacifiCare all beat earnings expectations this month.
"This is the year where we finally are seeing a recovery in the managed care field," said Joel Ray, an analyst with Wheat First Union in Richmond, Va. "What's driving it is very simple: We finally have premium increases outpacing medical inflation."
HMOs have finally stopped sacrificing profits to add members, instead enacting rate increases by an average of 5 percent to 10 percent in recent months. During the previous three years, HMOs kept rates virtually flat as an effort to attract new members while their medical costs were rising.
As a result, HMO profits have fallen steadily since 1994. Most HMOs lost money in 1996 and 1997, according to InterStudy, which tracks HMO trends.
On Thursday, Oxford Health Plans became the latest large HMO to beat Wall Street estimates, even though it continued to lose money.
Once the darling of HMO investors, Norwalk, Conn.-based Oxford trimmed its fourth-quarter loss to $19 million from $285 million a year ago. Oxford, which has 1.7 million members, narrowed its losses by quitting several unprofitable Medicaid markets and raising rates an average of 10 percent.
HMO profits should rise even more this year because many plans reduced money-losing coverage of Medicare enrollees starting Jan. 1.
The industry has largely abandoned Medicare, saying the federal government no longer provides them adequate fees to care for the seniors. About 440,000 seniors had to change health plans or return to traditional Medicare because their plan left Medicare as this year began.
The change in tactics isn't pleasing consumer advocates, who complain about rising health care costs after years of assailing HMOs about the quality of care.
Employers have accepted the higher premiums from HMOs this year largely because many have not faced significant rate increases since 1994. Employers expect health plans to raise rates by at least 8 percent this year.
The information provided by HealthCentral.com is for educational and entertainment purposes only and should not be interpreted as a recommendation for a specific treatment plan, product, or course of action. HealthCentral.com does not provide specific medical advice, and is not engaged in providing medical or professional services. Use of HealthCentral.com does not replace medical consultations with a qualified health or medical professional to meet the health and medical needs of yourself or a loved one. In addition, while HealthCentral.com frequently updates its contents, medical information changes rapidly and therefore, some information may be out of date. Please check with a physician or health professional if you suspect you are ill. Please review the Terms of Use before using this Web site. Your use of this Web site indicates your agreement to be bound by the Terms of Use.
Copyright © 1999 HealthCentral.com. All rights reserved.
