HMO Profits Up 16 Percent in Second Quarter 2001
Texas Plans Lose $212 Million, While California Plans Earn $281 Million

PALM BEACH GARDENS, Fla., February 4, 2002 - The nation's HMOs earned $503 million during the first six months of 2001, a 16 percent increase over the $434 million earned during the same period in 2000, according to research conducted by Weiss Ratings, Inc., the only independent provider of ratings and analyses on the HMO and insurance industry.

"The HMO industry has already had its own recession and bankruptcy crisis in recent years. Now, while the rest of the economy is facing similar woes, the HMOs are recovering nicely," commented Martin Weiss, Ph.D., chairman of Weiss Ratings, Inc. "However, many could be hurt if the much-heralded recovery fails to arrive and the national recession deepens. In preparation, the smart HMOs will use their recent profits to build the capital reserves they will need to absorb any future losses."

In addition to raising premiums to boost profits, HMOs continue to consolidate, rid themselves of unprofitable subsidiaries, and withdraw from unprofitable markets. As a result, from the beginning of 2000 through the first half of 2001, approximately 65 plans have merged, dissolved, or announced intentions to close, affecting nearly three million enrollees. Another 27 plans have been the subject of some type of regulatory oversight, affecting approximately 2 million enrollees.

Texas and Michigan Suffer Losses; California and New York Enjoy Profits

The profit gains were not evenly distributed around the nation. In Texas, the state with the biggest HMO losses, 37 plans reported an aggregate total of $212 million in red ink, and in Michigan, the state with the second largest losses, 28 plans lost an aggregate $38 million. Other states registering the highest losses in the aggregate include Ohio ($25 million), North Carolina ($18 million), and Maryland ($16 million).

On the positive side, the 25 plans in California earned an aggregate of $281 million while the 26 plans in New York earned $189 million. Other states reporting positive totals include Pennsylvania ($108 million), Minnesota ($47 million), and Massachusetts ($32 million).

Notable Upgrades and Downgrades

Of the 431 HMOs reviewed by Weiss, 31 received upgrades and 9 were downgraded based on second quarter 2001 data. Notable upgrades include:

• Group Health Cooperative Puget Sound (Wash.) from C+ to B-
• Healthguard of Lancaster, Inc. (Pa.) from C+ to B-
• Horizon Healthcare of New Jersey, Inc. (N.J.) from C+ to B-

Notable downgrades include:

• Aetna US Healthcare, Inc. (a MA Corp) from C+ to C
• Cigna Healthcare of New York (N.Y.) from C+ to C
• Well Care HMO, Inc. (Fla.) from D- to E-

The Weiss Safety Ratings are based on an analysis of a company's risk-adjusted capital, five-year historical profitability, quality of investments, 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 15,000 financial institutions, including life and health insurers, HMOs, 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 and 9,000 common stocks. 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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