HMO ROUNDUP: Higher Premiums Fuel Profit Recovery
HMOs around the country recovered somewhat in 1998 from steep losses in 1997, and while the worst might be behind them, many are expected to safeguard their recoveries by hiking premiums up to 20% this year, the Denver Business Journal reports (Austin, 4/12 issue). Employers had hoped that as HMOs cleared the red, "the pressure to raise premiums would ease." But the St. Louis Business Journal reports that just the opposite seems to be true: as HMOs' profits climb, "premiums jump." Buyers around the country are feeling the pain:
- Although four out of 10 St. Louis HMOs are still smarting from 1997 losses, three -- BlueChoice, Mercy Health Plans Inc. and Principal Health Care of St. Louis -- "lost less money than the previous year." Despite the upswing, insurance broker Tom Hudson said the market is bracing for premium increases of 10% to 20%. "We're hoping that premiums will return to normal increases, because there are a lot of upset customers out there," he said (Holyoke, 4/12 issue).
- In Albany, NY, "the worst may be past": five of seven area HMOs posted better results in 1998 than 1997. Even though only one area HMO scrambled out of the red in 1997, two made the jump in 1998. But for "every HMO that has emerged from losses or is eyeing the light at the end of the tunnel, there's another with tunnel aplenty to go," the Capital District Business Review reports (Moorse, 4/12 issue).
- Last year's rate hikes could not "staunch the flow of red ink" for HMOs across Connecticut, the Hartford Courant reports. Not including the deficit of now-defunct Suburban Health Plan, the state's HMOs collectively lost more than $36.4 million last year on $2.8 billion in revenue -- nonetheless a slight step up from 1997's $55.5 million losses. But the good news, according to a new report from the state Department of Insurance, is that in Q4 1998 the industry overall "turned a slight profit of $212,260 ... as the profits of eight Connecticut health plans offset the losses of seven others." The Courant reports that the overall losses "set the stage for larger premium increases this year," on the strength of which "some HMOs are optimistic about significantly improving their financial results in 1999" (Levick, 4/16). Some are specifically citing pharmaceutical costs -- including direct-to-consumer advertising and an increase in FDA drug approvals from 92 last year to more than 100 expected this year -- in the search for quick relief. ConnectiCare has asked regulators to approve a 4% average rate increase for small employers on top of the 9% increase already approved in January. Anthem Blue Cross and Blue Shield of Connecticut is proposing a 28.2% rate increase, but only on prescription benefits for employers who renew their HMOs after July 1 (Levick, 4/9).
- Blue Cross and Blue Shield of the Rochester Area is similarly proposing its own mid-year rate increase, "most likely for drug riders though possibly for overall premiums." The HMO rolled out of 1998 in the black, but "only after dipping into claims reserves to offset a loss." Rochester's other major insurer, Independent Preferred Care, was knocked back $11 million last year (Le Beau, Rochester Democrat and Chronicle, 4/9).