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PALM BEACH GARDENS, Fla.-The security ratings of nearly one in four health maintenance organizations reviewed by Weiss Ratings Inc. have been downgraded based on their year-end 1996 data.
Of the 404 HMOs reviewed, 97 were downgraded while 34 were upgraded. The ratings of the remaining HMOs were unchanged.
Notable downgrades include CIGNA Healthcare of California Inc., whose rating was lowered to C+ from B-; HealthAmerica Pennsylvania Inc., whose rating was lowered to D from C-; and U.S. Health Care Systems of Pennsylvania, whose rating was lowered to C+ from B-.
HMOs receiving upgrades include Blue Shield of California, which was raised to A- from B+; Oxford Health Plans Inc., to C from C-; and HealthNet, the HMO subsidiary of Health Systems International Inc., whose rating was raised to B- from C+.
The downgrades were directly related to the declining profitability of U.S. HMOs, according to Martin Weiss, chairman of the Palm Beach Gardens, Fla.-based ratings agency.
"This was the second year of declining profits after six years of steady profit growth," he said. "The reason is, health care expenses went up, but HMOs were unable to raise premiums accordingly due to increasing competition in the managed care industry," he explained.
According to the Weiss report, U.S. HMOs suffered a 60% decline in profits in 1996-down to $700 million from $1.8 billion in 1995. At the same time, HMOs paid out 88.8 cents in medical expenses per dollar of premium, up from 88.1 cents in 1995 and 86 cents in 1994.
These medical expenses, when combined with administrative overhead, exceeded premium income for the industry. As a result, companies were forced to tap capital resources, causing a 5.8% decline in capital during 1996, the report found.
"This means that, in order to avoid further profit declines, HMOs are now under pressure to raise rates, cut medical services or both," observed Mr. Weiss in an Aug. 4 news release announcing the findings.
None of the HMOs Business Insurance contacted would comment on their Weiss rating changes.
Weiss issues safety ratings on more than 16,000 financial institutions, including HMOs, life and health insurers, Blue Cross & Blue Shield plans, property/casualty insurers, banks and brokers. Weiss reviews HMOs' financial, security based on capitalization, liquidity, profitability and stability.
For more information on the financial safety of a specific HMO, contact Weiss Ratings at 800-289-9222. Weiss safety ratings are also available at many local libraries or through insurance agents and brokers.