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Study: HMO profits took nose dive at end of 1999

Profits for HMOs in the third quarter of 1999 dropped to $68.6 million — down 30 percent from the second quarter, and down 75 percent from the first quarter of last year, according to Weiss Ratings, a Palm Beach Gardens, Fla.-based independent provider of insurance company ratings and analysis.

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The downward trend means consumers ultimately will have to dig deeper in their pockets when paying for health insurance. Martin Weiss, chairman of Weiss, says consumers should expect an increase in health care insurance premiums, a redesign of benefits, or some combination of both.

Weiss' analysis shows that HMOs of all sizes, except the largest, reported third-quarter losses. Previously, only HMOs with fewer than 100,000 members reported losses.

"We've already begun to see an alarming number of HMO failures," Weiss says. "This continuing and spreading flow of red ink implies a still broader shakeout in the making, potentially disrupting millions of consumers.

According to Weiss, HMOs showed a $274 million profit in the first quarter of 1999. During the second quarter, HMOs reported a $97.5 million profit.

Weiss attributes the losses, in part, to the not-for-profit structure of some HMOs. The study notes that 285 HMOs identified by Weiss as for-profit earned $177.4 million while 93 non-profit plans lost a total of $57.8 million during the first nine months of 1999. In both groups, about half of the HMOs lost money (144 of the for-profit companies and 42 of the non-profits), Weiss finds.

HMO losses, third quarter of 1999

Number of HMO members
Third quarter
net income (in millions)

Number of HMOs
reporting

losses

Percentage of HMOs
reporting losses

Fewer than

100,000

-$266.8
163 of 305
53.4
100,000 to 250,000
-$83.1
39 of 98
39.8
250,000 to 500,000
-$130.2
15 of 40
37.5
500,000 or more
$548.7
7 of 32
21.9
Total
$68.6
224 of 475

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