HMO's Bleeding Worsens

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Tuesday | June 5, 2001

HMOs' bleeding worsens Higher premiums fail to spur profits 06/05/2001 By J.C. Conklin / The Dallas Morning News AUSTIN – Despite hefty premium increases, health maintenance organizations lost money at an even faster rate in North Texas during the first quarter of 2001. The largest 12 HMOs in North Texas lost a cumulative $11.7 million in the quarter, compared with a $10.1 million loss a year earlier.

Seven reported losses, and five had profits.

"It's obvious the last round of rate hikes wasn't enough to turn the corner. Employers will see double-digit increases again this year," said Armstrong, health care consultant for Hewitt Associates, a human resources firm based in Lincolnshire, Ill.

Insurers are facing a tough environment. Medical costs are rising. Hospitals have been consolidating and using their newfound market power to extract fee increases of 20 to 70 percent. And many insurers, especially in North Texas, are still trying to digest large and costly acquisitions they have made in the last two years.

Take PacifiCare of Texas. The insurer, which purchased Methodist Health Plan of Texas last year, says part of its $2.3 million loss this quarter stems from the continued absorption of ' 200,000 members.

Aetna U.S. Healthcare hasn't totally absorbed its 1998 purchase of Prudential yet, either. In fact, Prudential reported its results separately from Aetna and posted a $3.6 million profit. Aetna says its $3.1 million loss is mainly because of soaring medical costs.

Aetna said consumers are demanding more high-priced prescription drugs and visiting physicians more frequently. The insurer also experienced difficulties predicting high medical costs and has underpriced some of its health plans. For the company nationwide, its medical costs rose 15 percent in the first quarter.

Humana Health Plan has given up on its HMO product entirely in North Texas. In January, the company said it had difficulty earning a profit and would only offer its preferred provider organization, or PPO, which offers more freedom in choice of doctors.

Cost-cutting measures

In order to curb runaway costs, some insurers are attempting to cut fee rates to physicians. Jim Falconer, a principal in health care at M. Mercer Inc., a consulting firm, says he expects doctors will see cuts of up to 25 percent in PPO and HMO contracts because doctors don't have the same ability to bargain in a group as hospitals do.

Independent physicians associations bargain collectively for doctors, but physicians can opt out of those contracts. In recent months, many insurers have been trying to negotiate with individual physicians instead of IPAs.

Employers also are looking for ways to curb premium increases. More and more businesses are opting for administrative services-only contracts, meaning that the employer is responsible for funding the insurance plan and accepting all the risk while the HMO runs the plan, negotiates, contracts and administers benefits.

While HMO losses continued to mount in the Dallas-Fort Worth area, the industry showed vast improvement statewide. First-quarter losses throughout the state totaled $56 million, compared with a loss of $79 million a year ago.

"I'm glad to see shrinkage in the industry's net loss ..." said state insurance commissioner Montemayor. "While the first quarter numbers are encouraging, it's far too early to declare a trend away from the deep losses that HMOs sustained over the past five years."

Some good news

The news wasn't all bad for North Texas health insurers. Five reported modest profits from their Dallas-Fort Worth operations. Texas Health Choice registered a net income of $25,273 for the first quarter of this year compared with a net loss of $6.1 million in the year-ago period. The company attributes the upturn in fortunes to getting rid of unprofitable contracts and pricing its plans appropriately.

"We've taken an aggressive approach to appropriate pricing and are really pleased with the turnaround," said O'Neill, spokesman for Texas Health Choice.

Martha Murdock, DirectorNational Silicone Implant FoundationDallas, Texas Headquarters

Purposes for which the Corporation (NSIF) is organized are to perform the charitable activities within the meaning of Internal Revenue Code Section 501©(3) and Texas Tax Code Section 11.18 ©(1).Specifically, the Corporation is organized for the purposes of education and research of Silicone-related disease.

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