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Read Making a Killing

home / healthcare / in the media

The Daily News of Los Angeles
Oct 22, 2003

by Evan Pondel, Staff Writer

HMO PROFITS RISING AGAIN; PREMIUM INCREASES MAY FUEL 16% GAIN

Managed-care companies are poised for another year of solid gains, with profits expected to rise 16 percent in 2004, driven in part by a double-digit increase in premiums, according to the preliminary findings of a report released Tuesday.

Though companies are reaping profits, economists say it's not absolutely on the backs of workers. Christopher Thornberg, senior economist for the Anderson Forecast at the University of California, Los Angeles, said blaming managed-care companies for their exorbitant profits isn't going to help contain skyrocketing health care costs. "It's a matter of consumption," he said. "People need to start realizing how much health care they actually need."

Even so, Rep. Howard Berman, D-Van Nuys, said premium increases and their effect on small businesses and employers should be a top priority for lawmakers.

"It's a huge crisis. This is all part of why one of our great failures at the federal level has been a failure to provide comprehensive health insurance. Every time the technology gets better, yes, it's more costly, but it also seems like the price increases. Most of it goes into corporate profits and not better health care," Berman said.

With the cost of health care central to the current labor disputes in Southern California, many managed-care companies are effectively staving off the cost of prescription drugs and hospital care. Health plans are also wringing out administrative efficiencies through the implementation of new technology, said Carl Mercurio, president and publisher of the annual forecast released Tuesday by the Corporate Research Group.

"And rising costs have yet to dampen the prospects of the nation's managed-care plans," he said.

Nationally, health care companies are expected to generate about $6 billion in net income and revenue of about $225 billion in 2004. Rates are projected to rise 13 percent for commercial health-maintenance organizations, Corporate Research analysts said.

Much to the chagrin of smaller businesses that are saddled with double-digit premium increases, many employers are passing along health care cost to their employees. In the case of the supermarket workers, a single employee does not have to pay for HMO coverage, while on a national level employees are contributing $502 annually.

"And I think supermarket employees will eventually have to grapple with paying for health care benefits," Mercurio said. "It's a reality we're dealing with today."

Striking Metropolitan Transportation Authority mechanics earn $50,000 annually on average and pay nothing for their own health coverage, though they pay $6 monthly for family coverage and $3 for spouses. And while the MTA mechanics are fighting for greater control of their benefits and supermarket employees are attempting to tame the cost of health care, few consumers are
questioning the managed-care companies.

"It's like everyone is standing in hell and saying ouch it's so hot without pointing a finger at Lucifer," said Jaime Court, president of The Foundation For Taxpayer & Consumer Rights in Santa Monica. "The supermarket and mass-transit strikes are the ripple effects of the excesses and greed of an insurance industry that has bought Sacramento."

Double-digit earnings increases are expected for companies like WellPoint Health Networks, Aetna, Coventry, Humana, Mid Atlantic Medical Services and UnitedHealth Group, the Corporate Research study found. In 2002, WellPoint reported net income of $703.1 million compared with $414.7 million in the same period a year earlier. The Thousand Oaks company posted annual revenue of $17.4 billion in 2002, versus $12.4 billion in 2001.

But for many consumers, it's not easy to determine how much health care is needed without guidance from a doctor. And relying on a managed-care company can be equally confusing, said Earl Lui, senior attorney with the Consumers Union in San Francisco.

"The whole concept behind a health-maintenance organization was to help people manage care. But HMOs do not have the incentive to do that these days," Lui said. "And the whole notion behind preventive care doesn't happen, either.

"A health care company today doesn't believe it should spend any money to get people to lose weight when they are not going to be a customer very long," he said.

To put the customer more in touch with costs, Health Net will soon launch what its officials call a consumer-driven plan in California allowing employees to decide how much their co-payment should be as personal health needs persist.
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Contact Evan Pondel, (818) 713-3662 or evan.pondel(at)dailynews.com

Lisa Friedman contributed to this story.

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