By James McNair, The Miami Herald Knight Ridder/Tribune Business News
Apr. 8--Health maintenance organizations, which insure nearly four of every 10 Floridians, could use some health care themselves.
Last year, the 33 HMOs still doing business in Florida lost a total of $115 million, according to the Florida Department of Insurance. Had it not been for the profitability of providing care to Medicare and Medicaid patients, HMOs would have lost $291 million in the state.
Florida might be paradise to the elderly and infirm, but to HMOs it's a bloodbath. Especially when the coverage doesn't entail federal benefits.
'A lot of HMOs are not able to cover their costs on the commercial side,' said Glennda Newman, a financial analyst with the state's Agency for Health Care Administration in Tallahassee. 'They're in the hole covering their medical costs before they cover their overhead.'
HMOs provided health insurance to 4.9 million Florida residents in 2000, a fourth of them using HMOs as a pass-through for Medicare and Medicaid benefits. The number of HMOs in Florida fell to 33 from 35 by the end of 2000, yet total HMO enrollment remained steady at 4.9 million.
'What you're seeing is that some of the smaller plans, for whatever reason, are not able to make it and are currently winding down. But the people are finding other coverage,' said Jim Brocker, who monitors the solvency of health and life insurance companies for the Florida Department of Insurance.
The industry's dismal performance in 2000 has a few bright spots. For one, the $115 million loss represented a 35 percent improvement over the $176 million in red ink in 1999. Moreover, $103 million of last year's loss was incurred by a single company, Prudential Health Care Plan.
Aetna U.S. Healthcare acquired the Prudential HMO in 1999 and is in the process of assimilating its organization, products and brand name, said Aetna spokeswoman Marlene Baltar. She added that the combined company pulled the plug on its money-losing Medicare unit in January.
'The conversion [of Prudential] is taking place now, and we hope to complete it sometime in 2002,' Baltar said. 'It is our goal to improve profitability.'
Aetna, now neck-and-neck with United HealthCare of Florida as the second-biggest HMO in the state, turned a $14.9 million profit in 2000. The market leader, Health Options, generated more profit than any other in the state -- $29.9 million.
Of the 33 HMOs operating at the end of last year, 16 lost money. The losers included HIP Health Plan of Florida, ranked sixth in state enrollment; Foundation Health, ranked 11th; and Preferred Choice.
Gil Weber, a health care business consultant in Davie, ventured that HMOs lost money in Florida for myriad reasons. Among them, he said, are high prescription costs, higher-than-expected medical costs, a large immigrant population with unpredictable medical risks, and a history of price discounting by HMOs to win market share.
'The HMOs estimate what they expect their claims exposure is going to be -- how many cataract surgeries, how many open-heart surgeries, how many premature babies they're going to have in the next year,' Weber said. 'Based on that projected exposure and their belief that they can negotiate reasonable rates, they set prices to cover their costs and put money in the bank.'
As the last four years have shown, HMOs have done a miserable job of keeping up with costs -- on the commercial side of their business, anyway. According to a breakdown by the Agency for Health Care Administration, the 14 HMOs that handle Medicaid clients lost $291 million in the 1997-2000 period. During the same period, those companies netted $121 million from their Medicaid practice, $164 million from Medicare.
That gravy train, however, is drying up, thanks mainly to fee increase caps imposed on Medicare by the Balanced Budget Act in 1997. According to AHCA, HMOs lost $3.1 million combined last year, compared with $94.1 million in profit in 1999.
Medicare's diminished profitability has many HMOs rethinking that segment of the market. Humana Medical Plan, for instance, made $52.1 million off Medicare last year, but on Jan. 1 ceased doing Medicare business in six counties in Southwest and Northeast Florida.
'We're trying to stay with it and lessen the markets we leave,' said Harry Spring, director of government affairs for Humana in Florida, 'but the government is not keeping pace with the cost of our care. We're encouraging the government to reform the market.'
United HealthCare, a Minnesota HMO with a Florida headquarters in Sunrise, likewise is looking more and more to commercial accounts to boost growth. The company recently added the University of Miami, with 18,000 people, and Orange County government. United, which lost $17.4 million last year as a Medicare contractor, said Medicare reimbursements have fallen to 30 to 35 percent of its revenue.
'It's becoming increasingly difficult to provide the kind of benefits people expect at the rates the government's paying,' said Gary Schultz, president of United HealthCare's Florida division.
The squeeze is on in Medicaid contracting, too. A number of proposals are pending in the Florida Legislature that would cut Medicaid fees to HMOs. The working estimate is a 5 percent cut.
Against the backdrop of rising medical costs and falling fees from government, the $29.9 million in profit posted by Health Options stood out all the more. The largest subsidiary of Blue Cross/Blue Shield showed that it is possible to make money and stay in good standing with customers and health care providers.
'We truly believe that we are a customer-oriented organization,' said Chris Doerr, chief financial officer at Health Options. 'We try to provide customers with products and services they want, and if you have happy customers, you have a much better opportunity to earn a profit.'
Doerr said Health Options continues to grow in an industry marked by high customer turnover. Membership, he said, grew 15 percent last year to more than 1 million policyholders.
'Another important factor [in profitability] is pricing discipline,' Doerr added. 'This is a business that has very, very low profit margins. Our $30 million is a little less than 2 percent. If a company doesn't maintain strong pricing and underwriting discipline, you can get yourself into trouble quickly because the margins are so thin.'
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(c) 2001, The Miami Herald. Distributed by Knight Ridder/Tribune Business News.
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