Weiss Ratings reports HMO earnings up in first quarter

The nation's health maintenance or-ganizations recorded a net profit of $323 million in the first quarter of 2001, ac-cording to a release from Weiss Ratings Inc., a provider of HMO ratings. That amount follows HMO earnings of $1 million for all of 2000. It represents a $24 million increase, or 8 percent, compared to the $298 million profit earned during the first quarter of last year.

Martin D. Weiss, PhD, chairman of Weiss Ratings Inc., attributed the growth in profits to rate increases implemented by the HMO industry during the past three years.

"This, unfortunately, comes on the backs of consumers, but ultimately, is necessary to regain stability in the industry," Weiss said in the release.

Although the industry continued to improve overall, as many as 40 percent of the companies still lost money through March 31. Most of the HMOs that lost money, the release stated, were small, with 100,000 or fewer enrollees.

"We're watching to see what happens with the small HMOs as the industry regains stable profitability and evolves into a combination of managed care and traditional indemnity. The one linchpin is whether the recession will thwart this recovery," Weiss said.

Weiss believes that while the HMO industry has not suffered much direct damage from the events of Sept. 11, the recession and the effect of the attacks on the economy are likely to hurt HMOs.

Since August, the U.S. Department of Commerce has reported 682,000 job losses, implying that hundreds of thousands of people are losing employee health coverage, which drives down premium revenues and also makes it more difficult for HMOs to continue to raise rates.

In recent years, HMOs suffered the highest bankruptcy rate of any financial industry, with 58 companies falling between 1997 and 2000.

To date this year, only seven HMOs have filed for bankruptcy, but Weiss cautioned that if the current recession deepens, the danger of failure will once again emerge.