WEISS-RATINGS Nearly 60% of HMOs Lost Money in 1997; Weiss Downgrades 133 HMOs, Upgrades 54
Business Editors/Insurance & Health Writers
PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--Aug. 31, 1998--U.S. health maintenance organizations suffered a $768 million loss during 1997, with 57% of all companies losing money, according to a study by Weiss Ratings, Inc., the only independent provider of insurance company ratings and analysis.
The study covers 506 HMOs, representing 96% of the nation's HMO members.
"Last year was the third consecutive year of declining profits, but the first year of an actual industrywide loss," commented Martin Weiss, Ph.D., chairman of Weiss Ratings, Inc. "In response, HMOs have been raising rates precisely when consumers are demanding expanded coverage and increased provider choices, catching the industry in a double bind that is likely to intensify."
For every premium dollar received in 1997, HMOs paid out 90.1 cents in medical expenses plus 12.8 cents in administrative expenses on average, wiping out the industry's profits.
These are up from 88.9 cents and 12.5 cents, respectively, in 1996. In order to pay for the excess of expenses over income, many companies were forced to tap capital resources, resulting in a 6.4% decline in capital during the year.
In response, HMOs, which traditionally have had little or no investment risk, have begun building their portfolios of common stock. Although common stock remains a small portion of total assets
-- 2.3% in 1997 -- total common stock holdings increased 105%, from $394.9 million in 1996 to $811.2 million in 1997.
"Following the lead of other health insurers, some HMOs are attempting to replace lost revenues from operations with hoped-for capital gains in the stock market. In view of today's stock market volatility, this could be a high-risk and ill-advised tactic," commented Dr. Weiss.
Weiss ratings are based on an analysis of a company's capital, five-year historical profitability, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.
Among the 187 HMOs that received a changed rating, 133 were downgraded while 54 were upgraded, based on the analysis of year-end 1997 data.
Notable downgrades include:
-- Kaiser Foundation Health Plan, Inc. (Oakland, CA) A- to B+
-- Oxford Health Plans (NY), Inc. (Norwalk, CT) C- to D+
-- Prudential Health Care Plan, Inc. (Houston, TX) B- to C+
Notable upgrades include:
-- Cigna Healthcare of California, Inc. (Glendale, CA) C+ to B-
-- Harvard Pilgrim Health Care, Inc. (Brookline, MA) D+ to C-
-- Southeastern Group, Inc. (Louisville, KY) C+ to B-
Weiss Ratings issues safety ratings on over 16,000 financial institutions. It is the only major rating agency that receives no compensation from the companies it rates.
For more information, consumers may call 1-800-289-9222 or visit the Weiss Ratings web site at www.weissratings.com.
10 Strongest HMOs in the U.S.
Company State Weiss Safety Rating
-------- ------ -------------------
Blue Shield of California CA A-
Fallon Community Health Plan MA A-
Health Alliance Plan of Michigan MI B+
Kaiser Foundation Health Plan, Inc. CA B+
Kaiser Foundation Health Plan Colorado CO B+
Kaiser Foundation Health Plan
Mid-Atlantic States MD B+
Partners National Health Plans of NC NC A-
Total Health Care, Inc. MI A
Total Health Care Plan, Inc. OH A-
United HealthCare of the Midwest, Inc. MO B+
10 Weakest HMOs in the U.S.
Company State Weiss Safety Rating
-------- ----- -------------------
Beacon Health Plans, Inc. FL E-
Certus HealthCare LLC TX E-
CHA HMO, Inc. KY E
DayMed Health Maintenance Plan, Inc. OH E-
Emerald HMO, Inc. OH E-
Horizon Health Plan, Inc. KS E-
Integrity Health Plan of Mississippi MS E-
North Medical Community Health Plan NY E-
Physicians Health Services of NJ, Inc. NJ E
PriorityPlus of California, Inc. CA E-
A = excellent; B = good; E = very weak; + sign indicates higher
end of scale; - sign indicates lower end
National and state-specific listings of strongest and weakest
HMOs available.
--30--CL/ph*
CONTACT: Ellen Yui, 301/270-8571
Elizabeth Kelley Grace, 561/989-9855
KEYWORD: FLORIDA
INDUSTRY KEYWORD: BANKING INSURANCE MEDICINE
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