Weiss Ratings

HMO Profits Increase 33% in First Quarter 2004
Despite Rising Profits, Industry Operates on Slim Profit Margin

JUPITER, Fla., December 8, 2004 — The nation's HMOs1 reported a $3 billion profit for the first three months of 2004, representing a $742 million, or 33 percent , increase over the $2.3 billion earned during the first quarter of 2003, according to Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services companies, mutual funds, and stocks.

HMOs reporting the largest year-over-year increases in earnings2 were:

Company Headquarters Weiss
Net Profit (Loss)
1st Qtr
1st Qtr
California Physician Service San Francisco, Calif. A- 2.7 168.8 76.0 92.8
Highmark, Inc. Camp Hill, Pa. B- 4.1 59.2 (13.0) 72.2
Blue Cross of California Thousand Oaks, Calif. A 4.8 129.1 97.4 31.6
Humana Medical Plan, Inc. Miramar, Fla. B- 0.5 38.2 9.8 28.4
United Healthcare of Florida, Inc. Maitland, Fla. B 0.5 32.7 8.5 24.1

Weiss Safety Rating: A=Excellent; B=Good; C=Fair; D=Weak; E=Very Weak; F=Failed; U=Unrated

Industry Operates on Slim Profit Margin

Despite rising health revenues, the corresponding increase in health care spending has forced the industry to operate on a slim profit margin. Of the 544 insurers studied by Weiss for the year ending 2003, 69 percent experienced either negative margins or profit margins of less than five percent. Although the industry's aggregate profit margin has improved, rising to 3.78 percent at year-end 2003 compared to the negative 0.36 percent margin that HMOs struggled with in 1997, performance continues to lag when measured against profit margins of 8.2 percent, 5.5 percent, and 8.3 percent for the life, accident and health, and property and casualty insurance sectors, respectively.

The profit margins of the four insurance industry sectors are illustrated below:


"Although the industry has enjoyed an increase in revenues by raising premiums, insurers have also had to deal with the rising cost of medical care as a result of more open networks, an aging population, expensive medical advances, and an inefficient healthcare system," commented Melissa Gannon, vice president of Weiss Ratings, Inc.

Notable Upgrades and Downgrades

Of the 496 HMOs reviewed by Weiss using first quarter 2004 data, 119 companies were upgraded, while none were downgraded. Notable upgrades include:

•Molina Healthcare of Washington, Inc. (Bothell, Wash.) from B to B+
•Premera Blue Cross (Mount Lake Terrace, Wash.) from B to B+
•United Healthcare of NY, Inc. (New York, N.Y.) from B to B+

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 Ratings, Inc. reviews more than 8,000 stocks daily, including all those traded on the New York Stock Exchange, the American Stock Exchange, and Nasdaq. Weiss also issues investment ratings on more than 12,000 mutual funds, covering equity, fixed-income, and closed-end funds, and provides financial safety ratings on more than 15,000 financial institutions, including banks and insurance companies. It is the only major rating agency that receives no direct or indirect compensation from the companies it rates for issuing its ratings. Revenues are derived strictly from sales of its products and custom research solutions to consumers, institutions, businesses, libraries, and governmental agencies. Ratings and analyses, consumer financial and investment guides, and other products are available for purchase through www.weissratings.com or by calling 800-289-9222.

1Analysis based on insurers that filed a NAIC Health Statement or a California Health Care Service Plan statement. Other insurers offer health insurance but are not included in this analysis. Please refer to Weiss Ratings' Life & Health releases for additional health insurance studies and/or companies at www.WeissRatings.com.

2In reviewing HMOs' earnings, Weiss found that as a result of regulatory changes, the $393.8 million increase posted by Kaiser Foundation Health Plan represents nearly 50 percent of the industry's quarterly earnings increase. Excluding Kaiser, HMOs' profits increased only 17.3 percent in the first quarter. For this reason, Kaiser has been excluded from the above table.

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