WEISS RATINGS

Over Half Of HMOs Lose Money For Second Consecutive Year
100 HMOs Fail To Meet New Minimum Capital Guidelines

PALM BEACH GARDENS, Fla., August 9, 1999 -- U.S. health maintenance organizations suffered a combined $490 million loss during 1998, with 56% of the companies reporting red ink, according to a study by Weiss Ratings, Inc., the nation's only provider of ratings for most HMOs.

This comes on the heels of $768 million in losses in 1997, when 57% of the companies reported negative results.

Large HMOs reporting the heaviest losses include Harris Methodist Texas Health Plan (with a $99.1 million loss), Community Health Plan, Inc. in New York ($74.4 million), and Prudential Health Care Plan, Inc. in Texas ($63.6 million).

"This is not good news for the consumer," commented Martin D. Weiss, chairman of Weiss Ratings, Inc. "We're bound to see more HMOs dropping Medicare patients, more HMOs going under, and more rate increases as the industry tries to boost profits."

Covering 576 HMOs, the Weiss study found that 100 HMOs failed to meet minimum risk-based capital guidelines recently adopted by the National Association of Insurance Commissioners (NAIC).1

Although the NAIC guidelines are expected to become law in most of the 50 states, they have so far only been approved in three states. Had they been fully in effect at year-end, state regulators would have been required to take control of 18 HMOs, and would have had the authority to put another 19 under regulatory control if they deemed it in the best interest of policyholders. The remaining 63 HMOs would have been required to submit a plan of action to correct the HMO's financial problems.

"Risk-based capital regulations are long overdue in the managed care industry. These new disclosures validate our previous warnings regarding financial weaknesses among HMOs," Weiss commented. "But with nearly 20 percent of the companies potentially subject to regulatory action under the new guidelines, the industry has a long way to go before consumers are safe."

The table below lists the HMOs with the lowest risk-based capital percentages, based on the NAIC formulation.

Company Actual Capital as a
% of target capital
Humana Health Plan of Texas, Inc. 17.97%
Ochsner Health Plan (La.) 25.12%
PCA Health Plans of Texas 29.12%

These three HMOs, as well as 15 others, currently have less than 70% of "target capital" -- the capital level which the NAIC has deemed necessary to maintain financial stability. If the NAIC's guidelines were approved by the states, these companies would be subject to mandatory takeover. Companies with 70% to 100% of target capital would also be subject to takeover, but at the discretion of the regulators.

Notable Upgrades and Downgrades

Of the 576 HMOs Weiss reviewed, 55 received rating upgrades while 110 were downgraded based on an analysis of year-end 1998 data.

Notable upgrades include:

Company Previous
Rating
Current
Rating
Blue Cross of California B+ A-
Aetna US Healthcare Inc. (A NJ Corp.) C+ B-
Free State Health Plan, Inc. (Md.) C+ B-

Notable downgrades include:

Company Previous
Rating
Current
Rating
Pacificare of California B- C+
Harvard Pilgrim Health Care, Inc. (Mass.) C- D+
United Healthcare of Florida, Inc. B- C+

Since 1994, the Weiss HMO ratings have been based on its own internally developed risk-based capital standards for evaluating HMO solvency. Weiss also analyzes a company's five-year historical profitability, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.

Weiss issues safety ratings on more than 16,000 financial institutions, including HMOs, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, banks, and brokers. Weiss also rates the Y2K preparedness of many insurers and banks, as well as the risk-adjusted performance of more than 5,000 mutual funds. Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from sales of its products to consumers, businesses, and libraries.

Consumers who need more information on the financial safety of a specific company may purchase a rating or analysis directly from Weiss for as little as $15 by calling 1-800-289-9222. Weiss Safety Ratings are also available at many public libraries.

1The Risk-Capitol for Health Organizations Model Act was adopted in September 1998.


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