HMOs Profits Sink

June 4, 2007
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LANSING — Priority Health’s first quarter net income, which sank by about 45 percent compared to the same period in 2006, reflects flat underwriting gains that have marked the past eight months, CFO Gregory Hawkins said last week.

Statements filed this month with the Michigan Office of Financial and Insurance Services show the Grand Rapids-based HMO recorded net income of $6.2 million during the first quarter, compared to last year’s $11.3 million. That reflects an underwriting gain of $2.74 million, a decline from 2006’s first-quarter gain of $8.48 million.

“It is lower than last year, but if you look at the entire year of 2006, what you’d see is an underwriting gain or loss that was pretty much flat for the year,” Hawkins said. “The last three quarters of ’06 were flat relative to the first quarter.

“It’s a competitive environment, and the economic environment is not especially good in Michigan. It’s all reflected in the underwriting gain or loss.”

Priority Health’s member months decreased from more than 1 million at the end of 2006 to 986,387 in first quarter 2007. The number of members in 2007’s first quarter was 326,412, a dip from the 344,469 reported at the end of 2006.

Priority Health, majority-owned by Spectrum Health, acquired Care Choices from Trinity Health on April 1, the first day of the second quarter. For the first quarter of 2007 — the final quarter of its independent existence — Care Choices reported a slight dip in net income, from $1.72 million to $1.7 million. First quarter membership was pegged at 87,361, down from 91,888 at the end of 2006. Part of the total amount that Priority Health will pay for Care Choices is dependent on membership in 2007.

Blue Care Network, the HMO belonging to Blue Cross Blue Shield, posted a slide in net income to $551,390, compared to $6.6 million in the first quarter of 2006, reflecting an underwriting loss of nearly $5.7 million. Last year’s first quarter saw an underwriting loss of $5.6 million, while 2007’s first quarter underwriting was $255,313 in the red. The figures do not include M-Care, the University of Michigan health plan acquired late in 2006, said Susan Kluge, BCN senior vice president and CFO.

BCN’s member months rose to 1.45 million in first-quarter 2007 compared to 1.37 million in 2006’s first quarter, the HMO reported. BCN reported a membership increase to 488,901 members, compared to 482,998 at the end of 2006.

“It’s part of our plan that we would have a lower net gain,” Kluge said. “We wanted to give smaller rate increases to our employers groups, and so that’s what we did. We knew trends were going to be higher than what our premium rate increases were. Our total plan for the year is to have a significantly smaller net income than what we had in ’06.”

Premium rate increases for 2007 have averaged 5 percent to 6 percent, Kluge said.

“Our membership has started to increase even without the M-Care acquisition,” she said. “We’re just trying to be very careful on what we do with premium rate increases, and our investment income is still holding pretty strong. It helps to give us a relatively modest net income for 2007.”

BCN pegged first quarter net investment gain at about $6.3 million, less than the $6.78 million recorded for the same period in 2006 but enough to offset the net underwriting loss.

Grand Valley Health Plan, the only staff-model HMO in the state, slipped $74,108 into the red in first quarter 2007, while first quarter 2006 saw a modest net income of $17,873. Membership dipped to 10,610 from 11,698 at the end of 2006.

GVHP President Ron Palmer said, “We’re still seeing the economics of the marketplace not be good. We’re seeing companies not offering health insurance any more and having difficulty maintaining their contribution.”

Palmer said premium increases have been 6 percent to 7 percent, which he called “historically quite low.” He cited one trend: The growth in prescription spending is slowing as patents expire on medicines, and they become available as generics.  

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