Profitability Eludes Most Small HMOs
As Medical Costs Rise Faster Than Premiums

PALM BEACH GARDENS, Fla., January 22, 2001 — Medical expenses per enrollee rose 4.4% at small HMOs, eclipsing a corresponding 3.9% increase in healthcare revenues per enrollee and making profitability an elusive goal for most small HMOs, according to a recent study by Weiss Ratings, Inc., the only provider of independent financial ratings on health maintenance organizations. Comparing data from the first half of 2000 to the same period a year earlier, the study also points to a widening gap between small (those with less than 100,000 enrollees) and large HMOs (more than 500,000 enrollees). While large HMOs also experienced a sharp rise in medical costs per enrollee (7.2% on average), they were able to more than offset the increase by boosting revenues at a quicker pace (7.8%).

"HMOs have been pushing successfully for premium rate increases for several years now in an effort to get back to profitability. However, with medical costs rising at such a fast pace, quite a few HMOs, particularly the smaller companies, will continue to lose money," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings.

Small HMOs Lose $127 million; Large HMOs Post $528 million Profit

An unequal distribution of profits further highlights the disparity between the small and large HMOs. The 373 small HMOs reviewed in the study had an aggregate loss of $127 million for the first half of 2000, with 52% posting a loss for the period. In contrast, the largest HMOs, just 35 companies, reported a combined net profit of $528 million. Overall, the HMO industry recorded aggregate net income of $370 million in the first six months of 2000, up from $91 million in the first half of 1999.

Notable Upgrades/Downgrades and Ratings Distribution

In reviewing the industry's financials for the first half of 2000, Weiss upgraded the ratings for 21 HMOs while downgrading 12.

Notable upgrades include:
• Cigna Healthcare of New Jersey Inc. (N.J.) from C+ to B-
• Coventry Health Care of Georgia (Ga.) from C- to C
• Metrowest Health Plan Inc. (Tex.) from D+ to C-
Notable downgrades include:
• Amil International Texas Inc. (Tex.) from D- to E+
• Health Choice of Connecticut (Conn.) from D+ to D
• Kapiolani Health Hawaii (Hawaii) from D- to E+

The Weiss ratings are based on an analysis of an institution's capitalization, asset quality, earnings, liquidity, and stability. The latter category combines a series of factors including five- year trends, asset size and growth, strength of affiliate companies, and risk diversification.

Weiss issues safety ratings on over 16,000 financial institutions, including banks and thrifts, securities brokers, insurers, and HMOs. Weiss also rates the risk-adjusted performance of more than 10,000 stock, bond, and money market mutual funds. It 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 needing more information on the financial safety of a specific company can purchase a rating and summary analysis for as little as $7.95 through the Weiss Ratings web site at www.WeissRatings.com. Ratings are also available by phone (1-800-289-9222) starting at $15.

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