Managed Care Profits To Grow 16% In 03: Study

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The managed care industry will have another solid year in 2003, with expanding profit margins pushing net income up 16%, according to a forecast by Corporate Research Group, New Rochelle, N.Y.

Premium rates are going up faster than medical expenses, and the use of technology also is helping to boost margins by lowering administrative costs, the firm says.

CRG predicts profit margins will reach 2.4% at all managed care companies this year, up from 2.2% in 2002, and net margins will be higher at publicly traded companies.

Industry revenue will increase 7%, to $213 billion, CRG predicts.

“The managed care industry is on a roll,” says Carl Mercurio, president of CRG. “Industry profit margins should expand through 2005.”

Overall, however, managed care remains a low-margin business vulnerable to unexpected increases in medical costs, CRG says.

CRG sees more shrinkage at fully funded health maintenance organizations and point-of-service plans, with enrollment dropping 3% this year, to 68 million, after falling 4.5% in 2002.

Larry Akey, spokesman for the Health Insurance Association of America, says there is more to the story than the positive statistics tell.

“There have been slight increases in the profitability of managed care companies over the last year, but that follows on the heels of negative profits over the late 90s where these companies were losing money,” Akey says.

“Statistics are always interesting,” he adds. “When you start from a low base, a 16% increase looks like a big bump until you realize the starting base is a 2.2% net profit margin.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 27, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.