News and Commentary

High Profits Seen for HMOs Through 2003

The good times will go on for most health plans in terms of earnings through the rest of this year, experts believe.

That's because rate hikes are "in excess of medical trends," Rob Mains, an analyst with Advest, tells Business Insurance.

Greg Crawford, an analyst with Fox-Pitt Kelton, agrees. "Right now, it appears that premium rates will continue to track with medical costs," he says. "Medical costs are escalating, so you've got a situation where the companies are pricing in line with their expected cost, and I don't see any of the underlying economics of the industry disrupting that, so I think the outlook is stable and strong."

According to 2002 year-end results, the big winners are Health Net, Coventry, WellPoint, Anthem, UnitedHealth Group, and Humana.

There is a cloud on the horizon, however. HMOs are enjoying their earnings at employers' expense, and no one knows how long that can continue.

"Our goal is to try to get enough of a moderation in the health care cost trend to create an environment where the premiums aren't quite as high," David Olson, Health Net's vice president for investor relations, tells BI. "We're hearing from employers that they would like to find a way to lower premiums."

Evidence exists that employers aren't waiting for health plans to lead the way.

For instance, the Leapfrog Group focuses on improving patient safety as a way of reducing costs. Some employers want more monitoring of providers in order to pass that information on to employees. But that's not the only thing that will be passed on. Cost-shifting is being discussed more, but does not seem to have taken hold as much as Mains thinks it should have by now.


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