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State HMO's collective loss is $4 million
Star Tribune: Newspaper of the Twin Cities
June 18, 1987
Author: Maura Lerner; Staff Writer

Minnesota's health maintenance organizations had a tough year in 1986, losing $4.4 million even as revenues grew by 25 percent to close to $1 billion.

The 13 HMOs operating in the state had combined revenues of $949 million last year, up from $759 million in 1985, according to figures compiled by the Minnesota Department of Health.

Of those 13, seven lost money, including three of the biggest ones in the Twin Cities: HMO Minnesota, MedCenters Health Plan and Share Health Plan. And of the six that reported surpluses, three were down substantially from 1985.

HMO officials attributed the setbacks to intense competition, which has kept rates down, as well as to losses in treating elderly Medicare patients. By law, all HMOs in Minnesota are nonprofit, but losses drain their reserves.

The industry "is very, very price competitive," said Brian Kovalchuk, president of Share, which reported a $1.5 million loss on revenues of $159 million.

Kovalchuk said his HMO had to use its reserves primarily because it took on a $6 million expansion, doubling the number of primary-care doctors and investing in clinics.

"We added over 200 physicians and 70 new medical offices," he said. Share has about 157,000 members.

The state's largest HMO, Physicians' Health Plan, reported just $154,000 in surplus on $302 million in revenues. That surplus was down 88 percent from 1985. "I think what you're seeing is the same thing you're seeing in the insurance industry: a cyclic process," said George Morrow, PHP's president.

He said the main reason for this year's poor performance was increased use. "People want more and more care. I think that's reflected in the experience of all the HMOs." PHP has almost 400,000 members in Minnesota.

Nationally, 59 percent of HMOs showed a profit in 1985, according to a study released this week by the Group Health Association of America, a trade group based in Washington, D.C. No figures were yet available for 1986.

Kent Peterson, who oversees HMOs for the Minnesota Health Department, said some HMOs lost out last year because of Medicare patients, whose care tends to be more frequent and costly than others.

"On the expense side, undoubtedly one factor was the Medicare members that came in in very large numbers," he said. "We have a lot of Medicare members who are getting some very much needed medical care" - but at a cost to the HMOs.

Group Health, with about 206,000 members, had the biggest surplus among the state's HMOs last year, almost $1.6 million after expenses. But that was a 45 percent drop from the year before.

"I think there will be a definite easing up this year," said George Halvorson, Group Health's president and chief executive officer. He predicted that rates would increase sharply for some prepaid health plans in Minnesota. "I think the buyers can expect to see the 2 to 4 percent rate increase turn into 8 to 15 percent rate increases," he said. He said Group Health's increase probably would be "less than the marketplace.

"HMOs are still doing better than fee-for-service (health insurance)" he added. "The cost trends for fee-for-service will probably go up a lot."

And Peterson, of the Health Department, said he's already noticed a change.

"In 1987 the reports are the premium increases are much greater" for HMOs, he said.

Finances of Minnesota's HMOs

1986 1985

Central Minnesota Group Health Plan ($126,886) $222,826

Coordinated Health Plan 97,141 (721,565)

First Plan HMO 84,083 20,332

Group Health Plan 1,566,019 2,830,949

Health Partners (304,154) (192,436)

Hennepin County Bureau of Health 112,404 813,586

HMO Minnesota (1,739,573) (594,782)

Mayo Health Plan 13,188 -

MedCenters Health Plan (1,622,618) 155,158

MORE Health Plan (782,143) (795,137)

Physicians Health Plan 154,000 1,246,000

Senior Health Plan (283,285) (195,121)

SHARE Health Plan (1,542,000) 1,675,000

Total ($4,373,824) $4,464,810

(Parentheses designate net losses.)

Source/Minnesota Department of Health

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