Most Michigan HMOs Show Profit For 1st Quarter

June 7, 2002
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LANSING — The majority of health maintenance organizations (HMOs) in this state had a profitable first quarter and greatly improved their financial performance from the same period last year.

HMOs across the state reported a profit of $18.3 million for the first three months of this year, a figure that compares favorably to the $866,035 that the industry lost in the first quarter of last year.

“Twenty-four of the 28 HMOs licensed in Michigan are reporting year-to-date profit for the first quarter 2002, with 18 HMOs improving profitability,” said Frank Fitzgerald, commissioner of the Office of Financial and Insurance Services (OFIS), the state agency that regulates HMOs.

OFIS Communications Coordinator Julie Smith told the Business Journal that the last few quarterlies have begun to paint a pretty steady financial portrait of the industry.

“A little more on the improving side, yes,” said Smith.

“But given today’s economy, and financial cyclical information that we have on HMOs in the past, it’s something that we have to keep a close eye on,” she added.

Smith called the recent gains a trend, but cautioned that the industry regularly rides roller-coaster cycles that rise and fall with the cost of health care.

“The fact that they are showing good financial signs in a time of increasing health care is good news. Certainly we looked at those financials for the first quarter and were pleased with them,” she said.

“But, again, it’s a situation that we, like every HMO in the state, will be monitoring.”

Smith said OFIS wasn’t sure how long the current cycle would run, as previous data haven’t revealed a clear pattern to the ups and downs. But she said her office would watch a few external factors, such as investment income and the cost of health care, to get a better handle on its possible length.

Smith also said OFIS would monitor another element that comes from an HMO law passed in Lansing two summers ago and is exclusive to the state.

“We increased the requirements for reserves and net worth, basically to start an HMO in Michigan. That law hadn’t been revived for a number of years — fifteen or twenty years. As a result, for the last two years HMOs have been operating with significantly higher reserves,” said Smith.

“In addition to the strengthened statutory requirements of reserves behind them, they are still able to operate profitably right now,” she added.

Here are some highlights from the first-quarter numbers:

  • Twenty HMOs increased their capital and surplus by $7.1 million.

  • Sixteen HMOs wrote commercial business and had a profit of $12 million; 11 of those reported a total net profit of $14.4 million.

  • Twenty-two HMOs wrote Medicaid business and had a profit of $6.9 million; 18 of those reported a total net profit of $9.2 million.

  • Seven HMOs provided MIChild coverage for a total loss of $21,782, but three of those had a small profit of $47,369.

As for Medicare coverage, five of the 28 HMOs reported a total net profit of $42,782.

Three of the five, however, suffered a net loss of $661,972. The HMOs with the largest reported Medicare revenue were the Health Alliance Plan, $37.6 million, and M-Care with $24.1 million.

HMOs also reported a net loss of $1.3 million in the fee-for-service business and a net profit of $651,266 under the “other” business category.

At the end of March, state HMOs had underwriting gains of $7.2 million for Medicaid, $5.5 million for commercial and $311,228 for other business.

The industry also reported net underwriting losses of $18,747 for MIChild, $299,593 for Medicare and $1.3 million for fee-for-service.

Besides the 28 HMOs, OFIS also regulates Blue Cross Blue Shield, 144 banks, 285 credit unions, 1,500 insurance companies, 1,583 investment advisers, 2,164 securities brokers and dealers, 6,000 consumer finance lenders, 89,000 insurance agents and over 120,000 securities agents.

With the HMO industry now producing better financial numbers, can employers expect lower or even stable premiums in the immediate future? 

“That is definitely a question that I would pose to an HMO,” said Smith.

“However, that is not a trend that we have been seeing.”

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