HMO Profits Boost in First Quarter of 2004

 

Efforts to substantially de-crease the surging costs of medicine and health services in the U.S. have not stalled Health Mainten-ance Organizations (HMOs) from witnessing a sharp increase in profitability.

 

The majority of the nation’s HMOs reported a $3 billion profit for the first three months of 2004, representing a $742 million, or 33 percent, increase over the $2.3 billion earned during the first quarter of 2003, according to Weiss Ratings, Inc., an independent provider of ratings and analyses of financial services companies, mutual funds, and stocks.

 

Despite rising health revenues, the corresponding increase in health care spending has forced the industry to operate on a slim profit margin.  Of the 544 insurers studied by Weiss for the year ending 2003, 69 percent experienced either negative margins or profit margins of less than five percent.

 

Although the industry’s aggregate profit margin has improved, rising to 3.78 percent at year-end 2003 compared to the negative 0.36 percent margin that HMOs struggled with in 1997, performance lags when measured against profit margins of 8.2 percent, 5.5 percent, and 8.3 percent for the life, accident and health, and property and casualty insurance sectors, respectively.

 

“Although the industry has enjoyed an increase in revenues by raising premiums, insurers have also had to deal with the rising cost of medical care as a result of more open networks, an aging population, expensive medical advances, and an inefficient healthcare system,” said Melissa Gannon, vice president of Weiss Ratings, Inc.

 

In reviewing HMOs’ earnings, Weiss found that as a result of regulatory changes, the $393.8 million increase posted by Kaiser Foundation Health Plan represents nearly 50 percent of the industry’s quarterly earnings increase. Excluding Kaiser, HMOs’ profits increased only 17.3 percent in the first quarter.

 

The Weiss Safety Ratings are based on an analysis of a company’s risk-adjusted capital, five-year historical profitability, quality of investments, liquidity, and stability.  The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.  Weiss Ratings, Inc. reviews more than 8,000 stocks daily, including all those traded on the New York Stock Exchange, the American Stock Exchange  and Nasdaq.

 

The analysis was based on insurers that filed a NAIC Health Statement or a California Health Care Service Plan statement.  Some insurers offering health insurance were not included in the analysis.