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Boyne Falls, MI -- Competitive pressure pushed down average premium revenues for the largest Michigan HMOs by five to seven percent for the second straight year while spending for medical care increased. As a result, even as HMOs added thousands of new members in all programs, they lost $42.6 million in 1997 and have already reported losses of $21.3 million in the first three months of 1998. Hospitals, on the other hand, generally posted strong surpluses in 1997.
These are among the findings of Michigan Managed Care Review 1998, Allan Baumgarten's second annual report analyzing trends and issues in the Michigan health care market. The report, released here today at the annual summer conference of the Michigan Association of Health Plans, combines detailed comparisons of HMOs and hospital systems in the state with an analysis of the impacts of market developments and initiatives. Baumgarten is an independent health care finance and policy analyst and the author of annual reports analyzing managed care in Minnesota, Ohio, Illinois and Colorado. Support for his research in Michigan was provided by the Integrated Healthcare Division of SmithKline Beecham.
Among the report's findings:
Michigan HMO margins lost $42.6 million or 1.1 percent of their revenues of $3.7 billion in 1997. By comparison, they had surpluses of $105.2 million in 1995 and $40.4 in 1996.
The HMOs' losses can be explained by three trends: (1) pressure on commercial premiums, (2) Increasing health care costs and (3) reduction in Medicaid revenues. According to the report, average premium revenue for HMO commercial enrollees (not including Medicare or Medicaid plans) was flat in 1997 after having declined 2.2 percent in 1996. On average, HMOs collected $130.43 per commercial member per month in 1997. However, several major HMOs, including Health Alliance Plan, Health Plus, M-CARE and SelectCare, saw competitive pressures push their average revenues downward between five and seven percent.
At the same time, HMOs have not been able to contain rising medical costs. Their average medical loss ratios (the percentage of premium revenues spent on payments to providers and other health care costs) increased by more than two percentage points in 1997, from 90.1 percent to 92.5 percent. That came on top of a similar increase in 1996.
Spectacular losses by a few Medicaid HMOs overshadowed the surpluses recorded by most of the plans. While nine of the 14 HMOs serving Medicaid enrollees reported a surplus, some of the others lost millions of dollars. Historically, HMOs serving Medicaid enrollees have been among the most profitable in the state. However, the results of last year's competitive bidding process plus state payment changes reduced the revenues paid in southeast Michigan. Medicaid contractors received an average of $141.51 in 1997, down 12 percent from $160.87 in 1996. Some HMOs that did report surpluses had shifted part of the financial risk to their providers through new capitation contracts
Enrollment in HMO Medicare plans has grown from less than 7,000 in 1994 to more than 49,000 last month. Still, that is only about four percent of the eligible population. Some of the fastest growing Medicare plans have experienced large initial losses. Startup costs are high, and it is expensive to add as seniors one at a time. That is especially true in Michigan where many retirees have rich benefits from their former employers and no financial incentive to switch to an HMO. Overall, HMO enrollment increased by 11.4 percent in 1997, reaching 2.4 million. Growth continued in the first three months of 1998, as HMOs added 70,000 new lives. One in four Michigan residents is now enrolled in an HMO.
Hospital profits have generally been strong. The report found that 21 of the largest hospitals in outstate Michigan had average margins of 9.2 percent in 1997. Hospitals have continued to consolidate into local and regional systems and are constructing millions of dollars in new facilities.
For additional information about the report or to order copies of Michigan Managed Care Review 1998, available for $75.00, contract Allan Baumgarten at 612/925-9121 (fax 612/925-9341), 4800 West 27th Street, Minneapolis, MN 55416, or by e-mail: Baumg010@gold.tc.umn.edu
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