WEISS RATINGS

HMOs Return to Profitability Earning $990 Million
Blue Cross Blue Shield Plans Post Positive Results

PALM BEACH GARDENS, Fla., August 6, 2001 — For the first time since 1996, the nation's HMO industry turned a profit last year, according to a study of 492 companies by Weiss Ratings, Inc., the nation's leading provider of HMO ratings and analyses.

All combined, the 492 HMOs earned $990 million, compared to a cumulative loss of $1.8 billion in the three years from 1997 to 1999. The accompanying graph illustrates the fall and recovery of the HMO industry's profitability.

HMO Profits Recover from 3-Year Slump

After posting $1.8 billion in profits in 1995, the HMO industry's aggregate profits plummeted due to rising health care costs and growing consumer demand for more flexible plans reaching a low of -$864 million in 1998. Starting in 1999, large HMOs began restoring profitability by realizing the results of boosting rates and shedding unprofitable lines. At the same time, over 100 HMOs either dissolved or merged from 1999 to 2000. The sector's recovery continued through the end of 2000.

"This is not only good news for the HMOs themselves, it's also a positive for consumers who count on their HMO to be financially healthy and stay in business," commented Martin D. Weiss, chairman of Weiss Ratings Inc. "But the improvements have not come without costs to the consumer, such as premium hikes and service cutbacks, and they have not been evenly distributed across the industry. In fact, more than one third of HMOs are still considered vulnerable."

Premium rates increased by more than $300 per enrollee to $1,842 in 2000 from $1,506 in 1995. At the same time, 1,641,000 seniors were dropped from their Medicare HMOs between 1999 and 2001, and many were forced to seek health coverage elsewhere.

Plus, some uncertainties remain. The Weiss study found that most of the profits were concentrated among the 31 largest HMOs (those with more than 500,000 members), which together reported a total net profit of $1.2 billion in 2000. In contrast, most of the losses were found among the other 461 companies (those with fewer than 500,000 members), which together reported an aggregate net loss of $258 million. Consequently, there are still 194, or 41%, HMOs receiving a Weiss Rating of D+ or lower, considered vulnerable.

Blues Post Positive Results for Second Straight Year

Blue Cross Blue Shield plans posted positive earnings for the second straight year, with overall net profits of $2 billion in 2000. Net income from core underwriting business was $518.5 million in 2000, more than a 1,200% increase from the $39.3 million earned in 1999, and a significant leap from 1998 when they lost $788.3 million.

"Because of improved underwriting results, many Blues may not have to rely on capital gains and investment income as heavily as they have in the past. This is especially important during a downturn in the securities markets," Dr. Weiss added.

Notable Upgrades and Downgrades

Of the 452 HMOs rated based on an analysis of year-end 2000 data, 56 received rating upgrades, while 32 were downgraded. Notable upgrades include:

Health Alliance-Midwest Inc. (Ill.) from D+ to C-
Healthy Palm Beaches (Fla.) from D to C-
Paramount Health Care (Ohio) from D to C-

Notable downgrades include

Cigna Healthcare of Georgia (Ga.) from B to C+
Network Health Plan of Wisconsin Inc (Wis.) from C- to D+
One Health Plan of Illinois (Ill.) from B to C+

Among the 42 Blue Cross Blue Shield plans rated based on an analysis of year-end 2000 data, none were downgraded, while six received rating upgrades:

Blue Cross Blue Shield of Arizona (Ariz.) from C to C+
Blue Cross Blue Shield of MA (Mass.) from C+ to B-
Blue Cross Blue Shield of Vermont (Vt.) from C- to C
Empire Healthchoice Inc (N.Y.) from C to C+
Healthnow NY Inc (N.Y.) from C- to C
Horizon Healthcare Services Inc. (N.J.) from B to B+

Weiss issues safety ratings on more than 15,000 financial institutions, including HMOs, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, banks, and brokers. Weiss also rates the risk-adjusted performance of more than 11,000 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 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, or starting at $15 by calling (800) 289-9222.


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