Data shows profitability eludes most small HMOs

Medical expenses per enrollee rose 4.4 percent at small HMOs for the first half of year 2000, according to a news release from Weiss Ratings Inc.

The figure eclipsed a corresponding 3.9 percent increase in health care revenues per enrollee, making profitability an elusive goal for most small HMOs.

Comparing data from the first half of 2000 to the same period a year earlier, a Weiss study pointed to a widening gap between small (those with less than 100,000 enrollees) and large HMOs (more than 500,000 enrollees).

While large HMOs also experienced a sharp rise in medical costs per enrollee (7.2 percent on average), they were able to more than offset the increase by boosting revenues at a quicker pace (7.8 percent).

"HMOs have been pushing successfully for premium rate increases for several years now in an effort to get back to profitability," said Martin D. Weiss, chairman of Weiss Ratings.

"However, with medical costs rising at such a fast pace, quite a few HMOs, particularly the smaller companies, will continue to lose money," Weiss continued.

An unequal distribution of profits further highlights the disparity between the small and large HMOs.

The 373 small HMOs reviewed in the study had an aggregate loss of $127 million for the first half of 2000, with 52 percent posting a loss for the period.

In contrast, the largest HMOs, just 35 companies, reported a combined net profit of $528 million.

Overall, the HMO industry recorded aggregate net income of $370 million in the first six months of 2000, up from $91 million in the first half of 1999.

In reviewing the industry's financials for the first half of 2000, Weiss Ratings upgraded the ratings for 21 HMOs while downgrading 12.

The Weiss ratings are based on an analysis of an institution's capitalization, asset quality, earnings, liquidity and stability.

The latter category combines a series of factors including five-year trends, asset size and growth, strength of affiliate companies and risk diversification.

Weiss Ratings Inc. is the only provider of independent financial ratings on health maintenance organizations.