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Los Angeles Daily News

Major California HMOs fatten as insurance costs rise

by Michael Liedtke, AP Business Writer
Dec 06, 2002

SAN FRANCISCO (AP) -- California's biggest HMOs are getting richer even as rising medical costs strain the budgets of their customers, according to financial figures filed with state regulators.

The state's five largest health maintenance organizations had stockpiled reserves totaling $3.15 billion as of Sept. 30. That was $2.2 billion more than they needed to meet the minimum standards of financial health mandated by the California Department of Managed Health Care.

The robust reserves, known as tangible net equity, underscore the financial strength of five HMOs that provide health insurance for nearly 18 million Californians.

The five HMOs are: Kaiser Foundation, Blue Cross, Health Net, Blue Shield and PacificCare. These HMOs have two to four times more net equity than regulators figure they need under a complex formula based on their revenue and expenses.

The excess reserves increased during the summer at all five HMOs except Kaiser, which ended September holding $616 millon above the regulatory minimum, down from $692 million in June.

HMO officials say their policyholders should draw comfort from the hefty reserves because they represent a sort of rainy day fund should times get tough. The fat cushions also should protect the HMOs from the financial trouble that bankrupted another health insurer, Lifeguard, earlier this year.

"To say any plan has too much in reserve is absurd," said Walter Zelman, executive director for the California Association of Health Plans, a trade group.

"Things can change very quickly, as we have all learned from looking at business and government in the last couple years. California had a big surplus just a couple years ago and now it has a record deficit."

HMO critics, though, view the industry's large reserves as a sign of runaway greed.

"It's one thing to make sure your company is solvent, but that doesn't mean you should be allowed to get fatter while you're gouging people," said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, a watchdog group fighting for health insurance reforms.

Citing the rising cost of medical care, HMOs have been raising their rates substantially in the last two years. The trend has squeezed employers already feeling the pinch of the slumping economy and taking a bigger bite out of consumers' pocketbooks.

Out-of-pocket costs this year have climbed by more than 20 percent for some patients covered by employer plans. More rate increases are expected next year.

The contrasting fortunes of HMOs and their policyholders has raised eyebrows among state regulators who say the numbers suggest the plans can afford to invest more in better service.

The HMOs "get an 'A' for financial strength and a 'B' or 'C' for quality care and controlling costs," said Daniel Zingale, director for the state Department of Managed Health Care.

Many doctors also believe the prosperity of HMOs is coming at their expense. With HMOs increasingly refusing to pay them for the full cost of their bills, more doctors are refusing to accept patients covered by the plans.

The Foundation for Taxpayer and Consumer Rights hopes to focus attention on the hefty finances of HMOs as it lobbies for new rules that would require the insurers to get government approval of their rates.

The group says it may present the concept to voters in a 2004 ballot initiative.

Twenty-six other states require health insurers to get prior approval of their rate increases, according to the National Association of Insurance Commissioners.

Health insurers say more regulation would undermine competitive forces that help keep prices down.


On The Net:

California Department of Managed Health Care:

California Association of Health Plans:

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