Insurance and Technology

HMOs report steady profits, falling membership: Indiana insurers performed well overall in 2005

March 27, 2006

Most of Indiana's largest HMOs managed to turn profits in 2005, even as other kinds of health insurance gained market share, sucking away 6 percent to 15 percent of their customers.

Technology improvements and more efficient operations helped counter those losses, health maintenance organization executives said.

However, annual reports filed with the state Department of Insurance show that profit for some of these managed care options slipped compared to 2004.

Industry insiders say many companies are reluctant to offer HMOs for workers because they consider the plans expensive. Another challenge is they often attract the sickest of patients, who are drawn by the rich benefits packages they offer.

"They're generally not well-perceived by employers," said Gregory Wright, an Indianapolis-based independent insurance consultant and broker.

HMOs generally pay for care with a flat monthly rate and no deductibles, as opposed to traditional insurers that follow a fee-forservice format. In an HMO, a primary care physician within a network directs patient treatment and handles referrals.

Thirteen HMOs are based in Indiana, and thus are regulated by the Insurance Department.

The largest, Indianapolis-based M-Plan Inc., notched a $7.6 million profit last year while collecting more than $600 million in premium revenue. M-Plan saw its profit jump nearly $6 million from 2004 despite a 10-percent enrollment drop.

The insurer's CEO, Alex Slabosky, credits a tight focus on reducing administrative expenses. That included laying off 15 workers, bringing the employee count to about 295.

M-Plan also has invested in computer systems that process claims more efficiently.

"Now these programs are starting to pay off," he said.

The insurer raised rates last year and receives an extra discount when it covers care provided by majority owner Clarian Health Partners, Chief Financial Officer Connie Brown said. However, she said, those boosts were minor compared with the expense reductions.

Advantage Health Solutions Inc. lost 13,000 covered lives and more than $30 million in revenue when a majority owner, St. Vincent Health, switched employee coverage to Humana Inc.

However, the Indianapolis-based HMO still managed a $2.9 million profit last year, despite a total enrollment drop of 9,000 people, or 15 percent.

Like M-Plan, Advantage invested heavily in technology to improve efficiency. The HMO also softened the St. Vincent loss by signing on new customers, CEO Vicki Perry said.

Five of the six largest Indiana-based HMOs recorded profits last year. All six collected more than $100 million in net premium income.

Nationwide, HMOs have fought declining enrollment the past few years, said David Kelleher, president of the Indianapolis-based managed care consulting firm HealthCare Options Inc.

Many offer rich benefits packages for patients, but they have struggled to compete on cost with the wave of highdeductible/low-cost plans sweeping through the market.

Employers and younger, healthier employees favor these plans, consultants, say.

Plus, HMOs have to deal with adverse selection. Patients who need comprehensive coverage favor HMOs when they have a choice because they offer better benefits, Kelleher and Wright noted.

M-Plan saw its enrollment drop in part because employers switched to national insurance carriers that offer more products for their customers, Slabosky said, a trend he's seen play out across the country.

HMOs have been around for decades and grew in popularity in the late 1980s and early 1990s, Kelleher said.

Despite membership declines, Slabosky thinks they can recover. He and Brown believe HMO elements like the primary care physician directing coverage are attractive to consumers, and they hope to see people returning to products like theirs.

"We still have a lot of faith in the HMO model," he said.
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