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HMO players continue earnings roll: How long will employers put up with it?

MANAGED CARE July 2003. © MediMedia USA
Snapshot

HMO players continue earnings roll: How long will employers put up with it?

MANAGED CARE July 2003. ©MediMedia USA

The good times keep rolling along for leading publicly traded HMOs, as earnings from the first quarter of 2003 indicate. A report in American Medical News cites lower medical expenses than anticipated, continued cuts in overhead costs, better data processing techniques, growing enrollment, and, of course, premium increases as reasons for the flow of black ink into some of the major players in the industry.

Greg Crawford, an analyst with Fox-Pitt Kelton, says: "Right now, it appears that premium rates will continue to track with medical costs. Medical costs are escalating, so you've got a situation where the companies are pricing in line with their expected cost, and I don't see any of the underlying economics of the industry disrupting that, so I think the outlook is stable and strong."

There is a cloud on the horizon, however. HMOs are enjoying their earnings at employers' expense, and no one knows how long that can continue.

Just recently, the scion of one of the most famous industrialists in history looked at the nation's health care system and said that it "scares me enormously."

William Clay Ford Jr., CEO of the auto company founded by his great-grandfather, Henry Ford, finds health care costs to be "out of control," and put U.S. companies at a competitive disadvantage.He notes that the U.S. is the only major industrialized nation with an employer-based health care system.

Anthem leads the way
  United Cigna WellPoint Anthem
Membership (millions)
  18 12 13.5 11.5
Revenue (billions)
1Q 2002 $6 $4.8 $3.9 $2.8
1Q 2003 $7 $4.9 $4.8 $4.1
Change 16.1% 2.1% 22.8% 46.4%
Net earnings (millions)
1Q 2002 $295 $218 $141 $99.8
1Q 2003 $403 $236 $193.1 $192
Change 36.6% 8.6% 36.9% 92.4%
Per-share profit
1Q 2002 $0.92 $1.52 $1.01 $0.93
1Q 2003 $1.29 $1.68 $1.33 $1.18
Medical-loss ratio
1Q 2002 84.6% 84.4% 80.5% 84.6%
1Q 2003 82.1% 85.9% 81.5% 82.2%
SOURCE: QUARTERLY REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION