WEISS RATINGS

HMO Earnings Climb 8 Percent to $323 Million in First Quarter 2001
Recession and Terrorism Impact May Thwart Industry Recovery

PALM BEACH GARDENS, Fla., November 26, 2001 - The nation's HMOs recorded a net profit of $323 million during the first quarter of 2001, according to Weiss Ratings, Inc., the nation's leading provider of HMO ratings. This followed earnings of $1 billion for all of 2000 and represents an increase of $24 million, or 8 percent, over the $298 million profit earned in the first quarter of 2000.

"The HMO industry is continuing to bear the fruit of the rate increases it has been implementing over the past three years," commented Martin D. Weiss, PhD, chairman of Weiss Ratings, Inc. "This, unfortunately, comes on the backs of consumers but ultimately is necessary to regain stability in the industry."

While the industry overall continued to improve, as many as 40 percent of the companies still lost money through March 31, 2001. Most of these HMOs were small with. 100,000 or fewer enrollees. The following table shows the breakdown of profitability by size:

Membership
(# of individuals)
Q1 2001
Net Income
(millions of $)
HMOs Reporting
Losses
(# of Cos.)
HMOs Reporting
Losses
(% of Cos.)

Fewer than 100,000 -21.7 137 of 308 44.5
100,000 to 250,000 65.2 37 of 104 35.6
250,000 to 500,000 69.9 11 of 37 29.7
500,000 or More 209.5 10 of 32 31.3
Total 322.8 195 of 481 40.5

"We're watching to see what happens with the small HMOs as the industry regains stable profitability and evolves into a combination of managed care and traditional indemnity," added Dr. Weiss. "The one lynch pin is whether the recession will thwart this recovery."

While the HMO industry has not suffered much direct damage from the events of September 11, Dr. Weiss believes the recession and the impact of the attacks on the economy are likely to hurt the HMOs. He points out that the 682,000 job losses reported by the U.S. Department of Commerce since August alone imply that hundreds of thousands are now losing employee health coverage. Not only does this drive down premium revenues because of the immediate loss of members, but it will also make it more difficult for the HMOs to continue to raise rates, one of the key factors in their recent earnings recovery.

In recent years, HMOs suffered the highest bankruptcy rate of any financial industry, with 58 companies failing between 1997 and 2000. With the recovery in profitability in 2000, the bankruptcy rate has since greatly diminished, with only seven HMO failures to date in 2001. "However," warns Dr. Weiss, "if the current recession deepens, the danger of failure will re-emerge."

Notable upgrades and downgrades

Of the 456 HMOs rated based on an analysis of first-quarter 2001 data, 40 received rating upgrades, while 14 were downgraded. Notable upgrades include:

• Americhoice of New York, Inc. from D+ to C+
• Geisinger Health Plan (Pa.) from D to C-
• Summacare, Inc. (Ohio) from E+ to D+

Notable downgrades include:

• Cigna Healthcare of Virginia, Inc. (Va.) from B- to C+
• HealthLink HMO, Inc. (Mo.) from B- to B
• Parkland Community Health Plan (Texas) from C- to D+

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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