Minnesota Managed Care Review 2007

(Minneapolis-St. Paul) Enrollment in insured HMO benefit plans declined again in 2005, dropping below 1 million, the lowest level since 1985. Premium revenue increases slowed and profitability for HMOs decreased from its peak in 2004.

Part One of Minnesota Managed Care Review 2006 presents these and other key market trends. The report, released here today, is Allan Baumgarten?s 17th 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 2006, to be released later this year, will update information on HMOs and analyze profitability and care utilization for hospitals in the state.

In his new report, Baumgarten finds:

Enrollment in insured commercial plans declined again. Enrollment in insured commercial (employer-sponsored) HMO plans dropped by about 116,000 lives in 2005. Commercial HMO enrollment has declined from more than 1 million in 1996 to 510,000 in 2005, 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 used to have more than 660,000 insured HMO enrollees but now has only 260,000 as employer groups and seniors have migrated to Medica's non-HMO plans.

Premium revenue growth moderated in 2005. After high annual increases since 1999, revenues per commercial enrollee per month grew by "only" 7.1% in 2005. In 2005, HMOs increased their average premium revenues from $249 to $267 per commercial member per month. Still, employers have seen the average cost of HMO coverage, per member per month, increase by $100 since 2000.

Minnesota HMOs saw their profitability decline in 2005. Their net income fell from $135.3 million in 2004 to about $70 million in 2005. As a group, they broke even on operations but benefited from their investments. HMOs lost money on their employer groups but made money on Medicare and public assistance plans in 2005. They had net income of $9.4 million on their state programs in 2005, a fraction of the $66.9 million they netted in 2004.

On average, HMOs maintain reserves three times higher than the required minimum. At the end of 2005, Minnesota HMOs had combined capital of $1 billion, more than three times the minimum amount under state law.