Study shows smaller HMOs more likely to suffer losses

Half of America's health maintenance organizations continued to lose money last year, according to a study of 574 companies by Weiss Ratings Inc.

As a whole, the HMO industry reported losses of $186.6 million for calendar year 1999, despite aggregate profits of $753.5 million among the nation's 34 largest HMOs.

"There is a very large and disturbing disparity between the profits of the few large HMOs and the continuing red ink in the rest of the industry," said Martin D. Weiss, PhD, chairman of Weiss Ratings, in a release.

In 1999, losses exceeded profits in every size category except the very largest which includes those with more than 500,000 members (see table above right). There also was a clear pattern in which the smaller the HMO, the higher the likelihood of losses.

For example: 37.2 percent of the HMOs with 250,000 to 500,000 members reported losses; 39.3 percent of the HMOs with 100,000 to 250,000 members; and 56.6 percent of the HMOs with fewer than 100,000.

On the positive side, HMOs' losses in 1999 actually represented a significant improvement from the previous year, when the industry reported far larger aggregate losses of $863.9 million.

"There is a general instability in the industry that dramatically impacts consumer coverage. HMOs are changing benefit structures, raising premiums, revising or terminating provider contracts, and dropping out of unprofitable markets such as Medicare or unprofitable regions," Weiss said.

"Especially among HMOs that continue to struggle toward profitability, members can expect more of the same," he added.

Most and least profitable

Among the states with 10 or more HMOs reviewed, California's, which include many of the largest in the nation, posted the largest overall profit ($789.4 million), while those in Texas reported the greatest losses ($463 million).

Other states in which HMOs reported overall profits include New York ($91.8 million) and New Jersey ($41.3 million). In contrast, states with HMOs posting the largest losses included Massachusetts ($217.1 million) and North Carolina ($87.2 million).

$73 million Medicare loss

The study also showed that the Medicare line of business, often cited as a losing product line for many HMOs, contributed $73.3 million in losses among the 225 HMOs that reported participating in the Medicare program.

Texas HMOs reported the highest Medicare losses ($77.6 million), while New York companies reported the highest profits ($115.8 million).

Weiss analyzes a company's risk-adjusted 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.

Weiss issues safety ratings on more than 16,000 financial institutions, including HMOs, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, banks and brokers.