Its the economy: Priority Health reports firsthalf net loss

September 23, 2008
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LANSING — 2008 is proving to be a tough year on Priority Health’s Health Maintenance Organization, which posted a $2.5 million net loss for the first half of the year and a 10 percent membership drop over the past six months, according to second quarter financial statements filed with the state Office of Financial and Insurance Regulation.

Last year at this time, Priority’s HMO was $6.3 million in the black.

“Our membership levels haven’t hit target. That contributes to that net loss,” CFO Greg Hawkins said. “Also our medical expenses are a little higher than what we had anticipated.”

So far in 2008, Priority Health, owned by Spectrum Health, has collected a year-to-date underwriting loss of $9.4 million.

In numbers adjusted for last year’s purchase of Care Choices in Southeast Michigan, Priority Health has seen a slide in HMO membership of 18.5 percent over 18 months, down from 436,357 at the end of 2006. Hawkins blamed the state’s poor economy and layoffs.

At Blue Care Network, the HMO of Blue Cross Blue Shield, net income for the first six months of 2008 was posted at $23 million. Despite more than doubling its numbers enrolled in Medicare Advantage to 24,016, BCN also dropped in total membership this year by 10 percent.

BCN CFO Sue Kluge attributed that to a shift of a large group of members to self-funded plans. Medicare Advantage enrollment was buoyed by General Motors’ hourly retirees and Ford Motor Co.’s salaried retirees shifting into the product. Kluge said that overall she is pleased with enrollment numbers, given the difficult economic conditions.

BCN has more than doubled Medicare Advantage enrollment since Jan. 1, from 11,002 to 24,016. Parent company Blue Cross Blue Shield of Michigan reported overall Medicare Advantage enrollments up by 28,163, from 60,963 at the end of 2007 to 89,126 by the end of June.

The Kaiser Family Foundation estimated that total Medicare Advantage enrollment in Michigan was 237,400 in 2007.

The Southfield-based BCN listed an underwriting gain of $6.2 million for the first half of 2008, a reversal from a $3.5 million underwriting loss for the first half of 2007.

BCN reported that it shaved $11.5 million from general administrative expenses this year, Kluge noted.

“We now are able to see some of the synergies from having done the acquisition,” Kluge said, referring to the Dec. 31, 2006, purchase of the University of Michigan’s M-Care HMO. Some of the administrative savings were generated by employing about half the number of workers as the two organizations carried combined, she added.

Priority Health Government Programs, which serves 51,176 on Medicaid, reported net income of $2.3 million, compared to a half-million-dollar loss at this time last year. Membership for the HMO program for the needy in 10 West Michigan counties was up slightly, by 401, for 2008.

“I think we’ve kind of learned how to manage that business better. We have some very dedicated and hard-working folks working within the Medicaid population,” Hawkins said.

“We’re also the highest-rated plan in terms of Medicaid quality measures. As a result, the state’s automatic assignment process favors us in certain counties, and that’s contributed to an increase of membership.”

Grand Valley Health Plan saw a net loss of $220,483 so far in 2008, compared to a gain of $334,023 for the first half of 2007.

Membership in the Grand Rapids-based staff model HMO dropped to 8,689 by the end of June, from 9,457 at the end of 2007, a decline of 8 percent.

“Seventy-five percent of the loss we have is people losing jobs or not taking health insurance,” GVHP President & CEO Ron Palmer said. Membership is less than half of what it was at its peak, he added.

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