WEISS RATINGS

10 HMOs at High Risk of Failure

PALM BEACH GARDENS, Fla., October 25, 1999 — Ten of the nation's HMOs, covering over 533,000 members, are believed to be at high risk of failure due to continuing losses and capital deficits, according to a study by Weiss Ratings, Inc., the nation's only provider of ratings for most HMOs. The 10 HMOs, all receiving a Weiss Safety Rating of E- ("very weak"), are:

Company Capital
Deficit ($)
3/31/99
Total
Enrollment
Community Health Choice, Inc. (Texas) 957,526 20,564
Heartland Health Plan of Oklahoma 860,284 27,189
Memphis Managed Care Corp. (Tenn.) 6,953,698 56,381
North Medical Community Health Plan (N.Y.) 1,095,946 11,789
PrimeHealth, Inc. (Ala.) 21,350,562 41,481
PrimeHealth of Alabama, Inc. (Ala.) 2,468,763 24,715
PriorityPlus of California, Inc. (Calif.) 23,046,708 101,907
Rio Grande HMO, Inc. (Texas) 3,416,455 165,165
Vista Health Plan, Inc. (Texas) 3,427 26,532
Wellcare of New York, Inc. 17,117,828 57,371
Total 77,271,197 533,094

"With 10 plans at risk, plus 14 others that have already failed this year, the industry shakeout we've been warning about is now clearly here," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "The silver lining is that this may be the end of a two-year decline in industry profits."

Large HMOs Profitable During First Quarter; Small HMOs Still Losing Money

Among large HMOs, serving a total of 66 million members in America, most returned to profitability in the first quarter of 1999, earning a total of $274 million. However, among the nation's 322 smaller HMOs, serving more than ten million members, 161, or half, continued to lose money, producing a total net loss of $51 million among the 322 companies. 1

Dr. Weiss added: "The first quarter improvement by large HMOs is encouraging. But to solidify the trend, we’d like to see continuing profits in subsequent quarters, along with broader participation by the smaller HMOs, especially the 161 that are still reporting losses."

Illinois' HMOs Most Consistently Profitable; North Carolina's Least

Among the states with ten or more HMOs reviewed in the study, Illinois companies were the most consistently profitable, with all 16 reporting profits during the period. Other states with a majority of profitable plans include Kentucky (9 of 11), California (20 of 26), and Colorado (12 of 17).

In contrast, 11 of North Carolina’s 17 HMOs lost money, while other states with a majority of non-profitable companies were Tennessee (12 of 19 lost money), Missouri (10 of 18), and Ohio (13 of 24).

In dollar terms, California's 26 HMOs (including some of the nation's largest) earned the most, with $168.5 million in profits, while Texas' 51 plans lost the most, reporting a total of $9.9 million in losses.

Notable Upgrades and Downgrades

Of the 470 HMOs reviewed overall, 21 received rating upgrades, while 42 were downgraded based on an analysis of first quarter 1999 data.

Notable upgrades include:

Company Previous
Rating
Current
Rating
Metroplus Health Plan (N.Y.) E+ D
Presbyterian Health Plan, Inc. (N.M.) D+ C-

Notable downgrades include:

Company Previous
Rating
Current
Rating
Prudential Health Care Plan of California B- C+
Pilgrim Health Care, Inc. (Mass.) C D+
United Healthcare of NY, Inc. B- C+

Weiss analyzes a company's risk-adjusted capital, 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, banks, and large corporations, 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.

The Strongest and Weakest HMOs in the U.S.

SIZE CAPITAL PREMIUMS PROFITABILITY
Company State Weiss
Safety
Rating
3/31/99
Total
Assets
($000)
1998
Total
Assets
($000)
3/31/99
Total
Capital
($000)
1998
Total
Capital
($000)
Q1 1999
Total
Premiums
($000)
1998
Total
Premiums
($000)
Q1 1999
Net
Income/
(Loss)
($000)
1998
Net
Income/
(Loss)
($000)

Strongest HMOs

Blue Shield of California CA A 1,203,245 1,210,348 531,287 544,901 690,588 2,475,627 8,236 42,317

Blue Cross of California CA A- 1,982,925 1,905,232 540,255 503,885 1,231,857 4,416,913 51,844 212,812

Health Alliance Plan of Michigan MI A- 240,783 254,370 149,529 144,600 252,134 980,360 4,991 9,150

Partners National Health Plans NC A- 93,923 92,120 46,779 44,689 110,746 359,827 1,462 9,601

Medica MN B+ N/A 434,812 N/A 175,876 N/A 1,186,833 N/A 12,331

Weakest HMOs

Health Partners Health Plans AZ E- N/A 74,765 N/A -3,274 N/A 456,737 N/A -17,935

Rio Grande HMO Inc. TX E- 74,488 67,272 -3,416 14,379 72,207 258,741 -4,131 -17,306

California Pacific Medical Group CA E- N/A 24,256 N/A -4,017 N/A 136,242 N/A -7,547

Wellcare of New York Inc. NY E- N/A 17,818 N/A -14575 N/A 133,367 N/A -18,713

Priorityplus of California, Inc. CA E- 15,617 15,799 -23,047 -23,136 37,212 153,230 89 -2,276



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