HMOs Profiting From Higher Premiums
01:05 AM ET 02/26/99
By PHIL GALEWITZ=
AP Business Writer=
NEW YORK (AP) _ After years of anemic stock growth and flat
earnings, HMOs are starting to please Wall Street again.
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.''
In effect, HMOs that for years sacrificed profits to add
members, have quit that strategy and decided to start pleasing
shareholders.
HMOs have enacted rate increases by an average of 5 percent to
10 percent in recent months, while health costs last year rose
about 5 percent. That's a big change from the prior three years, in
which 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 inCare on Tuesday
both reported fourth-quarter earnings that were stronger than
expected. Earlier this month, Humana, which was among the first
health plans to seek significant rate increases in 1997, reported
profits that were in line with analysts' fothe darling of HMO investors, Norwalk, Conn.-based Oxford
trimmed its fourth-quarter loss to $19 million from $285 million a
year ago. That worked out to the equivalent of a loss of 42 cents a
share, not including unusual expenses, beating the 78-cents loss
that analysts expected, according to a survey by First Call.
Oxford, which now has 1.7 million members, narrowed its losses
by quitting several unprofitable Medicaid markets and raising rates
an average of 10 percent. Despite losing 9 percent of its members
in the last year, Oxford expects to return to profitability later
this year.
''HMOs have culled back and walked away from unprofitable
business, they've gone back to the basics,'' said Ray.
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 now
are complaining 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.
''From a buyers perspective, I don't think there is an
overwhelming sense of alarm,'' said Paul Shumway, a health
consultant for Towers Perrin in Fort Lauderdale, Fla.
|
