Minnesota Managed Care Review 2005

HMO enrollment declined again in 2004, dropping 10.9% to 1.1 million, the lowest level since 1989. However, HMOs had average net income of 3.0% of revenues, making 2004 their most profitable year ever.

Part One of Minnesota Managed Care Review 2005 presents these and other findings about key market trends. The report, released here today, is Allan Baumgarten's 16th annual report analyzing the Minnesota health care market. Baumgarten, an independent Minnesota-based analyst and consultant, also publishes annual reports analyzing health care markets in eight other states: California, Colorado, Florida, Illinois, Michigan, Ohio, Texas and Wisconsin. Part Two of Minnesota Managed Care Review 2005 will update information on HMOs and analyze hospital profitability and utilization, purchaser initiatives and other market developments.

In this report:

• Enrollment in insured commercial plans declined again. Enrollment in insured commercial (employer-sponsored) HMO plans dropped by about 79,000 lives in 2004. Commercial HMO enrollment has declined from more than 1 million in 1996 to 625,000 in 2004, as employers sought other health plan options. HMOs encouraged them to shift to PPO plans and to new benefit plans with high deductibles and health savings accounts. Medica moved about 100,000 commercial and Medicare enrollees from its HMO to its insurance company.



• HMOs increased their premium revenues per commercial enrollee per month by 11.2% in 2004. In 2004, HMOs increased their average premium revenues from $225.51 to $249.17 per commercial member per month. Minnesota employers have seen double-digit premium increases every year since 1999.



• Minnesota HMOs had their most profitable year in 2004. They had net income of $135.3 million, up from $128 million in 2003 and $65.6 million in 2002. They made money on both operations and investments.



• HMOs made money on Medicare and public assistance plans in 2004 but lost $8.4 million from operations in their commercial plans. Not including investment income, HMOs had net income of $66.9 million on their Medicaid and other state program plans including MinnesotaCare, and they made $20.2 million on their Medicare plans. UCare, which has the largest Medicare+Choice plan in the state, made $13.7 million on its senior plan, the second straight year of strong net income for that plan. The federal government has increased payments to HMOs substantially, and prospects are good for future enrollment growth and profitability in Medicare plans.



• HMOs increased their statutory net worth in 2004 to $901 million, compared to $463.4 million in 2000. In the five years from 2000 to 2004, Minnesota HMOs had cumulative net income of $507 million. On average, they had enough reserves to continue paying claims and overhead for 2.44 months, up from 1.8 months in 2002.