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HMO Profits up 73%: Good News for Shareholders, Bad News for Patients

by Jerry Flanagan, 10:40 a.m. PST, (415) 633-1320

Nationally, HMOs recorded a 73% profit increase in the first half of 2003 over the same period in 2002, according to the market analyst, Weiss Ratings. This announcement comes on the heels of record breaking profit increases over the last several years, a period in which more working families could not afford health insurance:

* 60% increase in the First Quarter of 2003 over the same period in 2002;
* 81% increase in 2002 over all of 2001;
* 162% increase in the First Quarter of 2002 over the same period in 2001;
* 25% increase in the first half of 2001 over the same period in 2000.

In the world of publicly traded health insurance companies, the way a company increases the value of the stock is often at odds with the needs of patients. Simply put, a clear method to receive a glowing report from an industry analyst, and therefore to drive up stock sales and value, is to divert money away from patient care into profit and cash reserves.

California health insurers have experienced similar trends. This week the non-profit HMO, Kaiser, announced a 2003 net income increase of 14 times higher than 2002 levels while patient enrollment fell by 2%.

In 2002, according to the U.S. Census Bureau, the fastest growing increase in uninsured rates occurred in families with annual incomes between $25,000 and $50,000.

These surges in profits and uninsured rates should once and for all make clear that oversight of premiums is needed. California has an opportunity to be a national leader in health care reform this year if the legislature and Governor Schwarzenegger approve Senator Ortiz's (D-Sacramento) legislation, SB 1349, which would require health insurers to get approval for profit and administrative costs before raising rates. Similar requirements have been in place since 1988 for auto insurers.

Weiss Ratings data can be viewed at: