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HMO Earnings Stabilize

By Steve Tuckey

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Profit growth at U.S. health maintenance organizations slowed to the low double digits in 2004.[@@]

Total profits for all 515 U.S. HMOs increased to $11.4 billion last year, from $10.3 billion the previous year, but the rate of increase in profits fell to 11%, from 80%, according to Weiss Ratings Inc., Jupiter, Fla.

In recent years, rates for HMOs have increased more rapidly than rates for preferred provider organization plans. Now, increases have slowed, in part because the HMOs that survived the recent industry shakeout are bigger and more stable, Weiss researchers say.

Any future HMO price increases “should not be as dramatic as they were in the past 2 years,” says Melissa Gannon, a Weiss vice president.

Consolidation may be playing a role in increasing stability in HMO rates and profits: HMOs with at least 500,000 members controlled about 59% of the market for HMO coverage in 2004, up from 46% 5 years earlier, according to Weiss researchers.