Priority Health Net Income Rises

March 15, 2004
Print
Text Size:
A A
GRAND RAPIDS — Better management of administrative and medical costs enabled Priority Health to nearly double earnings in 2003, pushing the Grand Rapids-based managed-care company’s reserve fund closer to a desired level.

Priority Health, growing rapidly with 55,000 new members in 2003, recorded net income of $30.6 million on revenues of $813.3 million. That compares with net income of $15.6 million on revenues of $635 million in 2002.

The earnings, combined with capital funds, lifted Priority Health’s reserve from $69.2 million to $107 million, or 13.1 percent of revenues. The not-for-profit company’s goal is to achieve reserves of 16 percent to 17 percent of premium revenues within the next year or two, Chief Financial Officer Dennis Reese said.

“We’re making progress, good progress, but it’s still not as far along as we’d like it to be,” Reese said.

Amid the improved financial performance in 2003, Priority Health posted a 3.8 percent margin. The company’s margin goal is 3 percent.

Driving the improvement was a further reduction in administration costs, from nearly 10 percent to 9 percent, and down from 12 percent in 1999, and a slowing in the growth rate of medical claims, which follows industry trends for 2003.

The growth in health care spending slowed in 2003 as consumers began responding to carrying a greater burden of the costs for their health coverage through higher co-pays and premiums that employers implemented to mitigate double-digit premium increases brought on largely by rising utilization rates.

Priority Health, majority-owned by Spectrum Health in Grand Rapids, also has stepped up disease-management initiatives and has been able to steer more people toward using lower-cost generic medications. In 2003 alone, Priority Health was able to raise the generic dispensing rate from 42 percent to 46 percent, generating $8.8 million in savings.

The company’s goal is to push the generic rate to 54 percent, generating further cost savings, said Rob Pocock, Priority Health’s associate vice president for corporate communications and marketing.

How those kinds of cost controls and savings translate to rates is the big question for Priority Health and other health plans. If the medical claims growth rate continues to ease, so too will annual premium increases begin to temper.

Priority Health for 2004 implemented premiums increases averaging 16 percent across all health plans. The company’s goal going forward is to maintain premium increases below the national medical trend, Pocock said.

“We do everything possible to keep the premiums low,” he said. “We’re a mission-driven company and our mission is to provide access to excellent and affordable care.”

Beyond the improved financial performance, Priority Health grew its membership by 14.8 percent in 2003, from 370,000 to 425,000 in a service territory that covers 37 counties in western Michigan, from south of Grand Rapids to Traverse City.    

Recent Articles by Mark Sanchez

Editor's Picks

Comments powered by Disqus