HMOs See Improved Results But Don’t Expect Any Savings
Priority Health, which has more than 268,000 members in 27 western Michigan counties, reported net income for the year of $13.8 million on total revenues of $473.7 million, according to the Michigan Office of Financial and Insurance Services. That compares with 2000 net income of $9.4 million on total revenues of $395.9 million.
The HMO’s net income consisted of a $9.6 million underwriting gain, vs. $5.6 million a year earlier, and investment income of $4.2 million, which increased from the $3.7 million of 2000.
Grand Valley Health Plan, with about 20,500 members in the area, moved into the black during 2001 after losing money a year earlier. Grand Valley recorded 2001 net income of $141,388, which compares with a net loss of $350,000 the previous year.
Executives from both HMOs attributed the improved financial results for their respective organizations to better management of costs and patient care.
“Those are the issues that are most important to us,” Priority Health Chief Financial Officer Dennis Reese said.
Grand Valley Health Plan, which owns and operates its own outpatient surgical and primary care centers, also credits a stabilization of the medical inflation rate with creating a better climate, President Ronald Palmer said.
Palmer, however, doubts that situation will continue, with the constant rise in utilization rates and such things as pharmaceutical costs. He also worries that the local health care market is evolving into a “medical arms race,” with the three major hospitals in Kent County undertaking or planning major capital projects that he sees as adding to the cost of health care.
“The inflation cycle in health care right now does not look good,” Palmer said. “What is on the horizon is going to increase it, rather than decrease it.”
While the HMOs saw improved results, that doesn’t mean it will translate into any substantial relief from the double-digit premium increase members have experienced in recent years.
Rising premiums are the result of growing utilization rates, an aging patient population, and the high cost of new medical technologies and pharmaceuticals. HMOs need to adjust rates accordingly to what they see as their cost structure 12 months to 18 months ahead — and none of the factors that are driving costs upward show any sign of abating anytime soon, Reese said.
“The driving factors are still there,” Reese said. “We’re going to be in a challenging environment for quite a while.”
The nonprofit Priority Health will use its 2001 net income to invest in information technology upgrades and build its reserves that now total about $43.4 million, or 9 percent of total revenues. Priority Health wants to build that reserve up higher, to 16 percent or 17 percent, to cover potential losses or sudden spikes in costs in the future.
“Health plans need to be healthier,” Reese said. “You need to have those reserves and weather these storms so you don’t get yourself in trouble.
“We need to continue that type of performance,” he said referring to that seen in 2001, “for several more years to get us to a position where we would be, in my mind, very stable.”
Statewide, 17 of the 28 HMOs reporting their financial results to the state recorded net income. Fifteen HMOs recorded a decline in profitability from 2000 results.
Of the HMOs that hold a significant market share in West Michigan, Blue Care Network — a subsidiary of Blue Cross Blue Shield of Michigan — recorded a $23 million underwriting loss and a net loss of $5.7 million. Blue Care Network is the largest HMO in the state, with more than 572,000 members.
Care Choices, owned by Trinity Health, the parent company of Saint Mary’s Mercy Medical Center in Grand Rapids and Mercy General Health Partners in Muskegon, recorded a $4.9 million underwriting loss for 2001 and a net loss of $2.7 million. Care Choices has more than 129,000 members.
HMOs in Michigan have the second largest share of the health insurance market in Michigan, collectively covering more than 2.7 million people.
Financial results from 2001 continue to show the HMO industry overall is “safe and sound,” Financial and Insurance Services Commissioner Frank Fitzgerald said.
2001: $473.7 million
2001: $9.6 million
2000: $5.6 million
2001: $13.8 million
2000: $9.4 million
Grand Valley Health Plan
2001: $38.2 million
Blue Care Network
2001: $1.35 billion
2001: -$23 million
2000: -$44.8 million
2001: -$5.7 million
2000: -$27 million
2001: $258.6 million
2001: -$4.9 million
2000: -$5.8 million
2001: -$2.7 million
2000: -$3.4 million