Many Large State Health Plans Posted Profits in 2001, But Experts Predict Long-Term Problems

Although many of the state's largest HMOs reported profits for 2001, maintaining such prosperity may be difficult, the Sacramento Bee reports. Kaiser Foundation Health Plan Inc. last week reported net income of $681 million and operating income of $714 million on revenues of $19.7 billion for 2001. Wellpoint Health Networks Inc., parent company of Blue Cross of California, posted the "strongest results" in the state last year, with net income of $414.7 million on premium revenues of $11.5 billion for 2001, compared with net income of $342.2 million on premium revenues of $8.5 billion a year earlier. However, in the long term, the state's largest HMOs will "have a hard time maintaining profits," Walter Zelman, president of the California Association of Health Plans, said. "We're not going to be able to sustain a system in which the combination of rising fees of hospitals and doctors and employers' and employees' demands for more options and choices keep pushing costs up at 10% or more a year," Zelman said. Some health plans have "pinned their hopes for future success" on a shift from traditional managed care to "less-restrictive" preferred provider organizations. In addition, many health plans have exited Medicare+Choice in a number of markets, citing low reimbursements from the federal government. Still, Dale Crandall, president of Kaiser Foundation Health Plan and Hospitals, said, "The key challenges for everyone in the health care industry will be rapid increases in pharmacy and hospital costs that continue unabated and the consolidation of strong national competitors in an increasingly volatile marketplace" (Rapaport, Sacramento Bee, 3/4).