Big Plans Turn Profits, Smaller Ones Still Hurt


It's hard to get a handle on whether the HMO industry is headed for brighter days — or still in the doldrums. Weiss Ratings reports that 47 percent of HMOs lost money in the third quarter of last year.

Aggregate HMO profits were $69 million, down from $274 million during the first quarter; losses started to hit all but the largest HMOs (those with more than a half-million members). Previously, most serious losses had been restricted to plans with fewer than 100,000 members.

An early glance at some first-quarter 2000 results is a bit more promising. Foundation Health says operating profits rose 22 percent from the same period last year, Cigna reported 16-percent profit growth, and Kaiser Permanente posted first-quarter net income of $142 million — up 233 percent from the same quarter of 1999.

For some, the news remains bad. Humana reported a 36-percent decline in operating profits, a bigger-than-expected drop. One of the few remaining staff-model HMOs in the country, Wisconsin-based Family Health Plan Cooperative, disappeared when it was sold to United Wisconsin Services. Family lost $21 million over the last two years.

The plans seeing higher profits say their improved bottom lines are largely the result of premium hikes; most seem to be basing their pricing now on profitability, rather than market share. The poorer results for many smaller HMOs, coupled with a number of recent HMO failures, prompted Weiss Chairman Martin Weiss to comment that a broader shakeout may be in the making.

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