Leaner times for HMOs

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: September 20, 2007 - 11:40 PM

Enrollment in Minnesota continues to decline as premiums increase and profits go down.

It was another down year for Minnesota's HMO industry in 2006.

New figures out today show that enrollment and profitability took another hit last year while premiums rose faster than the year before.

Enrollment dropped 8.2 percent last year to 915,000 from 997,000 in 2005. The decline came as employers turned to more traditional insurance plans or became self-insured. HMO enrollment peaked in 1997 at 1.4 million Minnesotans. Currently, fewer than one in four insured Minnesotans is covered by an HMO.

"I thought that enrollment would plateau at some point but it just keeps going, and I don't know if and when it will hit a plateau," said Allen Baumgarten, author of the study called "Minnesota Managed Care Review," now in its 18th year.

Three of the four major HMO providers -- Blue Plus, HealthPartners and Medica -- showed enrollment declines. At UCare, enrollment rose 3.1 percent because of growth in its Medicare Advantage program. Among the decliners, HealthPartners experienced the smallest drop at seven-tenths of 1 percent. HealthPartners was the only HMO to show enrollment growth in 2005. Medica showed the largest decline -- 31 percent -- as it moved clients from the HMO plan to its insurance company plan.

"Employer-based enrollment in HMOs has been going down for years," said Eileen Smith, spokeswoman for the Minnesota Council of Health Plans. "Employers are moving their coverage to the insurance side of the business, where they have more options to design their benefit coverage."

Even HMOs are building their own private insurance operations as an option for clients who want out of an HMO and to get away from state-mandated coverage rules and regulatory restrictions that were put in place in the 1990s when managed care was a controversial concept.

Demand for smaller benefits

"There's bigger demand for leaner benefit sets by both employers and individuals," said Doug Smith, senior vice president of sales for HealthPartners. "In a lot of cases you can't offer those leaner benefit packages under an HMO."

But, Smith said, there are advantages with an HMO in the form of a lower premium tax. HMO provider networks also are much broader than they were 10 years ago, he said. Indeed, the network for HealthPartners' HMO is the same as its insurance product.

"Things have really changed over the years. HMOs got a bad name for having a narrower network. Today we have an open-access network, and no referrals are required to see a specialist," Smith said.

The report said premiums rose 8.5 percent in 2006, compared with 7.1 percent in 2005, as medical costs grew faster than revenue. Despite the 2006 increase, year-over-year premium jumps remain far from the double-digit explosions that were common earlier in the decade. Premiums in the last 10 years peaked in 2001 with a 14.3 percent increase.

With rising medical costs, the state's nonprofit HMOs suffered operating losses of $35.7 million last year but managed to show a positive net income of $41.7 million with the assistance of $79 million in investment income. Among the losses was a $22.3 million shortfall last year in government-paid programs such as Medicaid.

"The increase in revenue [premiums] has fallen behind the increase in expenses and that can't be sustained," Baumgarten said. "It's not clear what they'll be able to do about it. It's hard for HMOs to go to employers and say, 'Eight percent wasn't enough last year, and this year we need 12 percent.'"

David Phelps • 612-673-7269

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