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Rate hikes may help group health insurers bounce back from a tough 1996.
Group indemnity insurers and health maintenance organizations are expected to introduce rate increases later this year, though group indemnity insurers' boosts are likely to be higher, says Richard Haw, a financial analyst with A.M. Best Co. in Oldwick, N.J.
Indemnity increases will be higher than HMOs because insurers do not have the same cost controls in place, "so basically they are paying whatever the doctor is billing," Mr. Haw said.
Meanwhile, the fourth quarter "was pretty much a repeat of the third quarter, with companies on the indemnity side continuing to struggle in light of the competition from other managed care operations," said Manfred Nowacki, vp with A.M. Best.
That struggle, "along with the downturn of the cycle in 1996, meant it was not a good year for indemnity companies."
As HMOs increase their market share, "you're seeing the shift from indemnity-based products to HMO-type products, which is causing a shift in the profitability in that business," said Mr. Haw.
Group indemnity plans are "kind of dying out" because even large plans, such as those of CIGNA Corp., are trying to shift some of their people to managed care from traditional indemnity, said Gloria Vogel, senior vp with Advest Inc. in New York. While some employees will always stay with an indemnity plan, many employers " don't give employees a choice in the matter."
Retrenchment by indemnity companies can also be expected this year, according to Mr. Nowacki.
"We think that many indemnity companies are going to continue to retrench and pull out of marginal markets. Indemnity companies that thought they could operate throughout the country are taking a serious look at where they operate" and are planning to remain just within their core marketplaces, in areas that can contribute to their profitability, he said.
The increased scrutiny of managed care organizations from Congressional committees and regulators may work to the advantage of indemnity plans, said John L. Ward, chief executive officer of the Cincinnati-based Ward Financial Group.
The scrutiny is "going to make it a little bit tougher" for managed care operations, "which is going to benefit the indemnity companies," said Mr. Ward, who said he is "mildly optimistic" about this segment of the business.
Furthermore, he said, the HMOs now are facing intense competition among themselves. "That's a plus" for the indemnity insurers, he said. "It takes the pressure off" and gives them more time to "retrench and refocus" and concentrate on their performance, Mr. Ward said.
Mr. Ward estimated that managed care now has more than 75% of the group health care market and that the share is increasing.