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Michigan Managed Care Review 1997
FOR IMMEDIATE RELEASE July 15, 1997
CONTACT: Allan Baumgarten, 612/925-9121
New report finds: Increased competition, lower profit margins and reduced premium revenues press Michigan HMOs and hospitals alike
Declining premiums, thinprofit margins and aggressive competitors are putting pressure onMichigan health maintenance organizations (HMOs). At the same time, hospital systems and physicians will need to operate more efficiently to respond to growing enrollment in Medicaid and Medicare managed care plans. Furthermore, initiatives by public and private purchasers to hold health plans and providers more
accountable will stimulate competition in the market.
These are among the findings of Michigan Managed Care Review1997, a new report on the Michigan health care market. The report, released today, combines detailed comparisons of HMOs and hospital systems in the state with an assessment of the impact of key market developments and initiatives.
The report was prepared by Allan Baumgarten, an independent health care finance and policy analyst. Baumgarten is also the author of annual reports analyzing managed care in Minnesota and Colorado. Support for the research was provided by the Integrated Healthcare Division of SmithKline Beecham.
Among the report's findings:
-- HMO margins declined from 3.1 percent in 1995 to 1.2 percent
in 1996. During the first quarter of 1997, the average margin was a
mere 0.1 percent. Most HMOs lost money on their operations in 1996,
but managed to maintain a positive bottom line because of their
investment income.
This decline in profitability is the result of two
developments. First, the rate of growth in HMO commercial premium
revenue (not including Medicare or Medicaid plans) has declined.
On a per member per month comparison, premium revenue for
commercial enrollees decreased an average of 2.2 percent in 1996,
from $133 in 1995 to $130.
At the same time, HMOs face rising medical costs. Their
medical loss ratios increased by two percentage points in 1996, to
an average of 90.1 percent. This is due to a variety of factors,
including the recent trend of HMOs to expand their provider
networks to meet purchaser demands for broader choice of providers.
In the process, HMOs' control over utilization and medical costs
has eroded. The significant overlap of HMO provider networks means
that HMOs also have lost some of their distinctiveness in the
market.
- HMOs serving the Medicaid population have been very
profitable, but state decisions will affect those margins. HMOs
serving Medicaid enrollees primarily have been among the most
profitable in the past two years. However, state decisions to
change the distribution of certain Medicaid funds combined
with the use of a competitive bid process will reduce payments to
health plans. HMOs will need to re-examine the amount they retain
for administrative overhead and profit and the amounts they pay to
their contracted providers.
- As HMOs serve more Medicaid and Medicare clients on a risk
basis, hospitals and physicians will face pressure to operate more
efficiently. To operate profitably, HMOs will seek to reduce
hospital admissions and lengths of stay for their Medicaid and
Medicare enrollees. Medicare Risk plans now enroll fewer than two
percent of the potential market in Michigan, but they are growing
fast. Three HMOs now sell Medicare plans, and others will soon
begin to market their plans. Some new entrants may be national
HMOs, such as Aetna/US Health Care, that have targeted the Michigan
market.
- HMOs' most formidable competitor remains Blue Cross Blue
Shield of Michigan, which controls nearly 50 percent of the market,
insuring four million Michigan residents, mostly in more
traditional insurance plans. In the western part of the state,
Blue Cross Blue Shield has taken market share away from local HMOs
(including its own HMO in that area, Blue Care Network-Great Lakes)
by introducing point of service health plans that are priced below
the local HMOs. Its Detroit-area HMO (Blue Care Network of
Southeast Michigan) prices its plans less than other major HMOs in
the area, and it has added 66,000 new enrollees in the past 15
months.
- Purchasers are introducing new ways of evaluating health
plans and hospitals and have taken early steps in applying that
information to their purchasing strategies. For example, General
Motors is benchmarking HMOs and using its employer contribution
policy to steer salaried employees to those plans that score
highest on measures of efficiency and quality.
For additional information or to order copies of MichiganManaged Care Review 1997, contact Allan Baumgarten at (612) 925-9121 (fax 612-925-9341), 4800 West 27th Street, Minneapolis, MN 55416,or by e-mail: Baumg010@gold.tcu.umn.edu/
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