Questions Arise After California HMOs Post Increased Profits in 2007
California HMOs' profits increased by 46% in 2007, prompting questions about rising premiums and health insurance cancellations and fueling calls from some groups for increased state regulation of health plans, the Sacramento Business Journal reports.
Industry sources attributed the increase in profits in part to medical costs coming in below projections that were used to set calculate premiums. Changes in federal tax law also contributed to the increase in stated earnings, health plan representatives said.
The upswing in earnings comes at a time when HMO enrollment is down by about 1.9% statewide. According to the Business Journal, an increasing number of employers and other customers are shifting to less-expensive health coverage options, such as high-deductible PPO plans.
Health plans say 2008 will be more difficult for them financially, the Journal reports.
Lawsuits and increased state regulation over wrongful rescissions of patients' health coverage could force plans to reinstate thousands of claims, which would cost them millions of dollars.
Cindy Ehnes, director of the California Department of Managed Health Care, said that current state law does not regulate HMOs' profits but acknowledged a regulation dating from the time when most health plans were not-for-profit entities that capped administrative costs at 15%.
It is unclear how that regulation applies to public companies, according to the Business Journal.
In addition, Ehnes said the state Department of Insurance permits insurers to use up to 30% of revenue to be spent on expenses unrelated to health care, creating a gap in California rules for HMOs and other health insurance products (Robertson, Sacramento Business Journal, 4/28).