Recession fuels HMO membership declines

March 30, 2009
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The recession and the state’s job losses weighed on health maintenance organizations in 2008, according to financial statements filed this month with the state Office of Financial and Insurance Regulation.

The year was especially tough on Grand Valley Health Plan, Grand Rapids’ small, staff-model HMO. GVHP posted a net loss of $1.9 million and a net underwriting loss of $3.6 million. Membership dipped to 8,330 from 9,457 in 2007. GVHP executives were unavailable for comment.

Richard Murdock, executive director of the Michigan Association of Health Plans, called 2008 a “mixed year” for the state’s HMOs. Commercial HMOs saw flat net incomes on average, at about 2 percent of premiums, he said. But the economy ensured that business was brisk for the HMOs serving Medicaid recipients, with their average returns compared to premiums at 3.27 percent, Murdock said, thanks to upticks in enrollment.

In 2009, the key for GVHP — and other HMOS — will be to stem the outflow of members, he added.

“I think if you look at overall HMO enrollment, it looks like it’s holding its own,” Murdock said. “When you peel off Medicaid growth, what’s left is commercial enrollment in the HMO product, and that number is slowly dropping.”

Also key will be state regulatory changes to the individual market and how that will impact the ability of HMOs to enter that market with a good rate of return, he said.

Murdock said that while 2008 proved to be a difficult year for GVHP, the organization continues to show signs that it is fundamentally sound. 

“They have more administrative control of their costs than other plans that contract with networks for providers,” Murdoc said. “Their enrollment is really the key factor.”

At Priority Health, 2008 ended with net income of $13 million, still in the black but down from the $25.5 million net income seen in 2007.

“It was challenging,” Priority Health CFO Greg Hawkins said. “The environment that we’re in now is challenging, with the economy and lay-offs. We’re working hard to try to control administrative expenses and medical trends as we can and, at the same time, ensure our members are getting the right kind of care.”

He said that GAAP accounting rules reveal a $2 million unrealized loss on equity investments for 2008, reflecting the huge stock market slide at year’s end.

“Our target for overall income is 2 to 3 percent, and we fell short of that in 2008,” Hawkins added. “It’s reflective of the investment markets and largely reflective of the economy as a whole.”

The number of full-time equivalent employees has dropped from 1,008 in December 2007 to 922 today. Hawkins said the reduction is the result of attrition.

HMO membership stood at 359,715 at the end of 2008, compared to 398,183 at the end of 2007.

“That is reflective, we believe, of the economy as a whole,” Hawkins said. “After the highest point for membership, immediately after the Care Choices purchase, there was some attrition in 2007 and the beginning of 2008. Some of it was related to the transition, some to other factors.”

The bulk of Priority Health’s business comprises the HMO.

However, in its consolidated statement, including Medicaid and Medicare Advantage programs, Priority Health’s net income dropped from $23.7 million at the end of 2007 to $16.2 million at the end of last year. Operating income declined nearly 70 percent and investment income nearly 22 percent from 2007 to 2008.

Consolidated membership also declined by 9.2 percent, from 475,681 to 431,699.

Blue Care Network, the HMO of Blue Cross Blue Shield of Michigan, posted net income for 2008 of $85.5 million, compared to $49.8 million in 2007, said CFO Sue Kluge.

Kluge pointed to a nearly $32 million reduction in administrative expenses and claims adjustment expenses as a major factor in net income growth.

“We have been continuing in 2008, as we have in past recent years, monitoring very closely our administrative expenditures, as well as the fact that we’re starting now to reap some benefits of the acquisition of M-Care. We’re now starting to see the synergies of having acquired that membership. Administrative costs being lower is a significant part of our increase of our net income for 2008.”

BCN also saw underwriting gains jump from $16.2 million in 2007 to $52.9 million in 2008.

Membership dropped from 626,403 in 2007 to 554,666 in 2008. Kluge attributed all but about 2,000 of that reduction to the move of one customer, still a Blues customer, into the self-funded arena.

She said BCN has little equity exposure in its investments and did not experience much volatility with the stock market decline.

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