HMOs Buoy Bottom Lines; Members Dip

March 31, 2008
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LANSING — Priority Health’s bottom line rose in 2007, while net income for rival Blue Care Network slipped.

In its year-end financial statement filed with the state Office of Financial and Insurance Services, the Spectrum Health-owned Priority Health HMO put net income for 2007 at $25.59 million, a 5.8 percent increase over 2006. The statement reflects Priority Health’s April purchase of Care Choices from Trinity Health.

“The $1.4 million increase over 2006 represents a very modest 0.1 percent of total revenues,” Priority Health CFO Gregory Hawkins said. “Based on today's economy we're grateful net income was positive. The increase can be attributed to our initiatives to managed medical costs and to underwriting gains.”

Priority Health posted an HMO net underwriting gain of $9.48 million on premium revenues that dropped from $1.38 billion in 2006 to $1.37 billion. Net investment gains held steady at $16.89 million, just slightly less than 2007’s $16.91 million.

“In today's economy, especially in Michigan, we're pleased that the 2007 underwriting gain, both in total and on a percentage basis, increased over 2006,” Hawkins said.

The increase in net income came amid an 8.7 percent drop in HMO membership — from 436,357 in 2006 to 398,183 in 2007 — which also led to an 8.7 percent reduction in member months.

“This is both a national and local trend,” Hawkins said. “Employers are looking for more options when providing benefits to their employees. That's why Priority Health is no longer just an HMO. We offer several products and different funding options, including PPO, POS, ASO, consumer-driven health plans, HSAs, HRAs, Medicare and much more. We are striving to make it easier for employers to offer the kind of benefits their employees expect while helping them mitigate the impact to their bottom-line.”

In its consolidated financial statement, Priority Health reported 475,681 members as of Dec. 31, a 6.5 percent decrease from 2006. Consolidated premium revenue in 2007 grew 1.5 percent to $1.53 billion, from $1.51 billion the previous year. Consolidated net income was $23.76 million, down 8.1 percent from $25.85 million in 2006.

Blue Care Network, the HMO owned by Blue Cross Blue Shield, listed net income of $49.8 million in 2007, following the purchase of M-Care. The 2006 net income was restated to reflect two one-time changes related to the acquisition, said BCN CFO Sue Kluge.

BCN posted a net underwriting gain of $16.2 million on net premium income of $2.15 billion. The HMO claimed 626,403 members in 2007 after tallying 646,699 in the previous year, a reduction of 3.1 percent, but a less than 1 percent difference in member months.

Kluge said several national accounts dropped HMO offerings in favor of health insurers with a multi-state reach. “It’s less costly for the employers to have fewer carriers,” she said.

She also blamed the state’s lagging economy.

“A lot of people moved out of state. They lost their jobs and don’t have coverage, and employers are going out of business,” Kluge said. “BCN has done quite well. Even though we had a decline, it was a smaller decrease in membership compared to other HMOs in the state.”

In BCN’s west region, which stretches from Michigan’s southern border to Traverse City, Kluge said the HMO’s membership grew by 17 percent from the end of 2006 to last December. She attributed that to “competitive rates” and new products such as Healthy Blue Living, which ties employee costs to healthier lifestyles.

Grand Valley Health Plan slipped below 10,000 members, counting 9,365 in 2007, a 19 percent decline from 11,566 in 2006. That led to a 21.4 percent drop in member months.

Michigan’s only staff-model HMO, based in Grand Rapids, listed net income at $283,572 on the strength of net investment gains of $725,695. The HMO’s net underwriting loss was $294,458 on net premium income of $32.9 million. Net premium income was 15.5 percent less than in 2006.

Last month, Blue Cross Blue Shield of Michigan reported a $58 million drop in consolidated net earnings to $152.2 million. The nonprofit company, the state’s largest health insurer, posted a loss of $307.2 million on its health insurance business, pointing to investment income and its for-profit subsidiaries for providing earnings.

“Our subsidiaries and investments are delivering the income necessary to keep us operating in the black, at very low or negative margins, while keeping the pressure off health insurance premiums,” BCBSM President and CEO Daniel J. Loepp said in a press release.

BCBSM’s for-profit subsidiaries include Accident Fund Insurance Co. of America, which sells workers’ compensation insurance, DenteMax and LifeSecure.

The company claimed a third straight year of declining reserves at 688 percent, under Risk Based Capital, which it said is midway between the state-imposed maximum of 1,000 percent and the 375 percent required by the Blue Cross and Blue Shield Association. The amount of reserves, estimated at $2.8 billion in 2006, has become an issue as BCBSM wrangles with the Michigan Senate over a four-bill package that would reform the individual insurance market and expand the Accident Fund’s lines of insurance.

Consolidated revenue expanded by about 19 percent over 2006 to $19.4 billion, which BCBSM attributed to expansion of Medicare Advantage and prescription drug programs, which grew from $600 million to $2 billion in revenue last year.

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