Weiss Ratings

HMO Profits Plunge in Third Quarter '99 as 47% of Companies Lose Money; Largest HMOs Only Profitable Sector

PALM BEACH GARDENS, Fla.--(BW HealthWire)--April 26, 2000--HMO profits plunged to $68.6 million in the third quarter of 1999 from $97.5 million in the second quarter and $274 million in the first quarter of last year.

Overall, 47% of HMOs lost money, according to Weiss Ratings, Inc., the only provider of independent financial ratings on HMOs.

The breadth of HMO losses also continued to increase. While previous losses were isolated to small HMOs with fewer than 100,000 members, third-quarter losses were reported for all size groups except the largest -- HMOs with 500,000 members or more:

"We've already begun to see an alarming number of HMO failures. This continuing and spreading flow of red ink implies a still broader HMO shake-out in the making, potentially disrupting millions of consumers," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings. "Fortunately, there are still quite a few financially healthy HMOs from which to choose."

For-Profit vs. Non-Profit HMOs

Looking strictly at aggregate numbers, Weiss attributes part of the problem to the not-for-profit structure of some HMOs -- 285 HMOs, identified by Weiss as for-profit, earned a total of $177.4 million while 93 non-profit plans lost a total of $57.8 million during the first nine months of 1999.
However, in both groups, approximately half of the HMOs lost money -- 144 of the for-profit companies and 42 of the non-profit companies.

"There is a widespread problem in this industry, cutting across every sector and region. For many of the surviving companies, it portends sharp premium increases, the redesigning of benefits, or some combination of both," commented Dr. Weiss.

Notable Upgrades and Downgrades

Of the 551 HMOs reviewed overall, 27 received rating upgrades, while 35 were downgraded based on an analysis of third quarter 1999 data. Notable upgrades include:

-- HMO Blue (Mass.) from D+ to C-

-- Pacificare of California from C+ to B-

-- IHC Health Plans, Inc. (Utah) from D+ to C-

Notable downgrades include:

-- Harris Methodist Texas Health Plan from D- to E+

-- Pilgrim Health Care, Inc. (Mass.) from D to E+

-- CompCare Health Services
Insurance Corp. (Wis.) from B- to C+

Weiss analyzes a company's risk-adjusted capital, five-year historical profitability, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.

Weiss issues safety ratings on more than 16,000 financial institutions, including HMOs, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, banks, and brokers. Weiss also rates the risk-adjusted performance of more than 10,000 mutual funds. It is the only major rating agency that receives no compensation from the companies it rates.

Revenues are derived strictly from sales of its products to consumers, businesses, and libraries.
Consumers who need more information on the financial safety of a specific company may purchase a rating or analysis directly from Weiss for as little as $15 by calling 1-800-289-9222. Weiss Safety Ratings are also available at many public libraries.

Note to editors: National and state listings of strongest and weakest HMOs are available.

CONTACT: Weiss Ratings, Inc., Palm Beach Gardens

Ellen Yui, 301/270-8571

or

Elizabeth Kelley Grace, 561/989-9855

For more information, visit http://www.weissratings.com

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