HMO Profits Up 81% in 2002

December 10, 2003 ( - Health Maintenance Organizations (HMOs) saw an 81% rise in profits from the end of 2001 to the close of 2002.

As 2002 drew to a close, the nation’s HMOs had earned an aggregate of $5.5 billion, compared with $3 billion in the previous year, according to Weiss Ratings.   Weiss attributed this rise in part to a combination of increasing premiums and restructuring policies to reduce costs.

The overall strength of the industry was evident by across-the-board improvements among HMO size categories and the shrinking number of organizations reporting a loss.   Of the 544 HMOs studied, Weiss found that only 25% reported a loss in 2002 compared to 36.6% of insurers in 2001.   Among the winners in 2002, nearly 71% of small companies – those with fewer than 100,000 enrollees – reported profits in 2002 compared to only 55.9% in 2001 and 48.7% in 2000.

On a dollar basis, the largest increase in earnings was recorded by Richardson, Texas-based Southwest Texas HMO, Inc.   In 2001, Southwest turned in a negative $222.1 million loss, at the end of 2002 though, the HMO showed a profit of $55.1 million.   Joining Southwest were other impressive pick-ups from the end of 2001 to the end of 2002:

  • Empire Healthchoice Assurance, Inc – $150.1 million improvement
  • Blue Cross of California – $119.8 million better
  • Blue Cross Blue Shied of Wisconsin – $117.9 million change
  • Blue Cross Blue Shield of Michigan – $105.2 million higher.

Particularly high increases (117.7%) were noted from the industry’s Medicare+Choice line of business improved, which earned $1 billion in 2002 compared to $462.9 million in 2001 .   Weiss said that line’s improved performance was due to the discontinuance or reduction of costly M edicare+Choice plans by many insurers and the enactment of the 1999 Balanced Budget Refinement Act (BBRA), which resulted in higher reimbursement rates.

Also,as seniors have left or been dropped by their Medicare+Choice plans and returned to traditional Medicare, HMOs have capitalized on the increased need for Medicare supplement insurance – Medigap. This has resulted in a 90.6% increase in Medigap profits in 2002, climbing to $270.5 million from $141.9 million in 2001.