Losses climbing for some HMOs
Kaiser Permanente, Aetna Inc., and Pacifi-Care Health Systems are among the latest HMOs to report staggering losses in the millions and to face grim profit margins for their organizations, reports a recent article in The Wall Street Journal.
According to the story, Kaiser Permanente reported a loss of $270 million for 1997, but at the same time, expanded its membership by 19% to over 8.9 million. Although revenue increased 10% to $14.2 billion last year, Kaiser got into trouble because the corporation was already locked into low-priced contracts when medical costs increased, the article states. The article further explains that Kaiser also had trouble keeping up with some $180 million in non-network medical care its members received.
Many managed care companies started to get off-course in 1995 by reacting to the low medical cost trends in 1994, the article states. They competed to see who could offer the lowest premiums, often locking them in, and signed up new members quickly.
Because the organizations did not invest enough in information systems to keep up with member costs, they began to lose track of what they owed.
HMOs are reacting to the losses by increasing premiums to restore profit margins and redesigning financial plans, the Journal states.
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