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This fact sheet provides an overview of the role of Medicare and Medicaid in serving these beneficiaries; describes the health status of dual Medicare/Medicaid beneficiaries, and discusses issues of managed care and access to care.
Kaiser Family Foundation/Harvard University School of Public Health: Update on Americans’ Views on the Consumer Protections DebateThe Kaiser Family Foundation/Harvard University School of Public Health Update on American’s Views on Consumer Protections in Managed Care is based on findings from the April 1999 Kaiser/Harvard Health News Index. The survey was designed and analyzed by researchers at the Kaiser Family Foundation and Harvard University. Nationwide interviews were conducted by telephone with 1,200 adults, 18 years and older between April 10 to April 22, 1999.
Health News Index March/April, 1999
The March/April 1999 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health stories covered in the news, including questions about Social Security, Medicare and Medical Uses of Marijauana. The survey is based on a national random sample of 1,200 Americans conducted April 10-22, 1999 which measures public knowledge about health stories covered by news media during the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.
Medicare’s Role for Latinos
Medicare’s Role for Latinos – (Spanish version)
Note: This publication is no longer in circulation. However, a few copies may still exist in the Foundation’s internal library that could be xeroxed. Please email order@kff.org if you would like to pursue this option
The NPR/Kaiser Family Foundation/Kennedy School of Government National Survey on Americans and Dietary Supplements was designed by staff at National Public Radio, Kaiser Family Foundation, and the Kennedy School of Government and conducted by Princeton Survey Research Associates. The survey was conduced bytelephone with 1,200 adults (age 18 or older) nationwide between February 19 andFebruary 25, 1999. The margin of sampling error is plus or minus 3 percentagepoints.
A Financial Overview of the Managed Care Industry
March 1999
Part 2
Recent HMO Activity
After 6 years of steady growth, HMO profits declined in 1994, 1995, and 1996; in 1997, nearly 60 percent of HMOs lost money (Weiss Ratings). Although HMO net income plunged from 1994 through 1997, HMO enroll-ments were up 72% and total revenues rose 77% over that period (Best’s Aggregates & Averages HMO, 1998). At the same time, health services companies have grown increasingly profitable throughout the 1990s.
While underlying health care costs have continued to grow especially for prescription drugs plans competing for market share have until recently sought to hold premium levels down. HMO premium increases moderated through-out the early 1990s, and the rates charged to large employersactually declined by 0.4% in 1996. Since then, premiums charged to large firms have increased 2.0% in 1997 and 2.9% in 1998 (KPMG Peat Marwick). Most analysts now expect premiums to escalate, with one study predict-ing increases of 6-9% in 1999 (Hewitt Associates).
In part due to recent premium increases, some plans including PacifiCare, Wellpoint, and United HealthCare are now reporting positive balance sheets. However, other plans are continuing to report significant losses. For example, Kaiser Permanente, one of the nation’s largest andmost visible HMOs, lost $288 million in 1998 (or 2.8 percent of operating revenues), on top of a loss of $266 million in 1997 (3.2 percent of operating revenues). Kaiser attributes 1998 losses to increases in the cost of care from pharmacy and hospital services, and the use of non-Kaiser Permanente health facilities.
Responding in large part to financial pressures and to pay-ment reforms in the Balanced Budget Act of 1997, plans have pulled back from some markets, especially in theMedicare program. For 1999, nearly 100 HMOs either reduced their service areas or terminated their contracts with Medicare, affecting more than 400,000 beneficiaries (nearly 7% of Medicare HMO enrollees). The reasons cited by HMOs for the withdrawals were the inadequacyof Medicare s payment rates and the regulatory burden of participating in Medicare, including increased require-ments for consumer protections.
Mergers and acquisitions have beenanother feature of HMO activity in recent years. The proportion ofHMO enrollees in the 10 largest national managed care firms oneindicator of market concentration has grown rapidly recently afterremaining steady at about 55% for a number of years,rising to 67% in January 1998 (InterStudy). Major mergers in theindustry include Aetna’s purchase of U.S. Healthcare in 1996 andCIGNA’s acquisition of Healthsource in 1997. More recently, Aetnaannounced that it will buy Prudential for $1 billion. This deal has beencriticized by such organizations as the American Medical Association and is under review by fed-eraland state regulatory agencies. Mergers may put a strain on an HMO s financial results, in part because of the difficulties of integrating the businesses acquired. Concerns have also been raised about the resulting domi-nation of a small number of HMOs in certain geographic markets, the impact on providers ability to negotiate pay-ment rates and resulting impact on treat-ment time and options, and patient fears that provider networks will be disrupted. At the same time, mergers can lower coststhrough economies of scale and increased purchasing leverage by plans.
Issues
Do recent stock price declines signal a shift in prospects for the managed care industry?Many investors were drawn to managed care companies asgrowth stocks that would achieve success by meeting therapidly growing demand for lower-cost managed care prod-ucts,as well as the potential to increase efficiency. Now,over three-quarters of those with employment-based healthinsurance are enrolled in some type of managed care plan,so potential further growth in that segment of the market islimited. Overall, enrollment growth has been especially visi-blein open-access products, but there are uncertaintiesregarding the ability of these plans to control costs.
How will rising premiums affect insurance coverage?While premium increases may help to restore the finan-cial health of HMOs, such increasesalso impact the cost of health carefor employers and enrollees. Smallbusinesses (who are least likely tooffer coverage) and lower incomeindividuals (who are most likely tobe uninsured) are particularly vul-nerableto cost increases. The num-berof uninsured has continued inrecent years to rise by more than onemillion a year, even in a period ofunprecedented economic prosperityand moderate growth in healthinsurance premiums. Rising premi-umscan only increase the already large number of peopleuninsured.
Would the passage of consumer protection legislationaffect the financial viability of HMOs? Consumerprotection legislation has been introduced in Congressand in many states. What would be the impact of provi-sionssuch as mandating external reviewprograms, prudent layperson paymentrequirements for emergency care, andhealth plan liability? Some estimatessuggest that the cost of these and otherprovisions could be large,but independent analyses by theCongressional Budget Office andCoopers & Lybrand (prepared for theKaiser Family Foundation) point to amore modest cost impact.
What is the future of HMOs in Medicare? Despite planwithdrawals for 1999, HMOs are expected to cover anincreasing proportion of beneficiaries. With future pres-sureto lower federal payments to plans, will HMOs con-tinueto find this market attractive and provide expandedbenefits such as prescription drugs?
How do market pressures affect quality of care? It is notclear whether profit status matters in the quality of care thatis delivered, or whether, in the near future, we will havereliable measures to judge quality across not-for-profit andfor-profit organizations. Market incentives have been bothcredited for eliminating unnecessary care and blamed forforcing providers to skimp on quality and quantity of care.
The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, independent national health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries.
For more information,visit the Foundation sweb site at www.kff.orgor call the publicationrequest line at(800) 656-4533.
This Fact Sheet is also available in PDF format. Return to top
A Financial Overview of the Managed Care IndustryFact Sheet Part 1 Fact Sheet Part 2
A Financial Overview of the Managed Care Industry
March 1999
Part 1
The rapid growth of managed care has brought with it a growing connection between the stock market andhealth care organizations. Health care services have evolved from being delivered by physicians and tax-exempt institutions to a market-driven industry attracting investment capital from numerous sources. The market capitalization, or total stock value, of the relatively young HMO industry grew from a little over $3 billion in 1987 to almost $39 billion in 1997 an almost twelve-fold increase while the stock mar-ket as a whole grew about four-fold to a total of $10.5 trillion. However, recent health plan earnings and premium announcements indicating companies difficulties in managing medical costs have led some equity analysts and investors to question whether these health sector stocks will offer growth potential in the future. And, financial difficulties in the HMO industry may have important implications for health policy debates that are increasingly connected to the practices and potential of private health plans.
The Growing Influence of For-Profit Organizations
The increased corporate influence in health care is espe-cially evident in the growing prevalence of for-profit companies within the HMO sector. Between 1981 and January 1998, for-profit HMOs grew from representing 12% to 63% of total HMO enrollees, and from 18% to 74% of plans (InterStudy). Among hospitals, on the other hand, for-profit companies have increased their role, but nonprofit organizations continue to dominate the industry. Between 1980 and 1996, for-profit companiesgrew from representing 9% to 13% of community hospi-tal beds (American Hospital Association).
The growing role of for-profit companies in the HMO and hospital sectors has resulted from a combination of the emergence and growth of for-profit companies, as well as conversion of not-for-profit companies to for-profit status. One outcome of these conversions is the estab-lishmentof charitable foundations designed to preserve the charitable missions and assets of the formerly not-for-profit organizations. As of February 1999, there were at least 109 conversion foundations in the U.S., with assets totaling about $13 billion. Health plan con-versions represented the source of only 11 of the founda-tions, but these foundations hold almost half of the total assets (Grantmakers in Health).
Stock Trends
Many for-profit health care compa-nies have tapped the stock marketfor financing. According to an analysis prepared for the KaiserFamily Foundation by Securities Data Company, there were 233 ini-tialpublic offerings (IPOs) of stock of health companies between 1987 and 1997.
The total stock value (or market cap-italization) of publicly traded healthservices and HMO companies has increased dramatically over the pastdecade. Total market capitalization of HMOs grew from $3.3 billion inJanuary 1987 to $38.9 billion as of the end of November 1997, an almost twelve-foldincrease. For companies classifying themselves as health services (including hospitals and nursing homes), capital-ization grew from $16.3 billion to $112.7 billion over thesame time frame. In comparison, the overall stock market grew a little over four-fold during this time period. Wall Street’s growing interest and role in health care companiesis also evidenced by the increased number of investment analysts following health care stocks from 152 in 1987 to 559 in 1997, according to Nelson’s Directory of Investment Research.
Over the last decade, HMO stocks generally out-per-formed the market as a whole, although they experienced periods of significant price declines, most recently betweenJuly and September 1998. In contrast, health services companies tracked just somewhat above the marketthrough much of the decade until 1998, when health ser-vices fell below the market. Recently, average annual returns for health services and HMO companies have suf-fered relative to the overall market. Using a University of Chicago index developed for the Kaiser Family Foundationthat measures the market-weighted return of stocks, a 1987 investment of $100 in the market as a whole would have grown to $610 by the end of 1998. In comparison, an investment of $100 in HMOs would have grown to $807, while a similar investment in helath services compa-nies would have increased to only $393. In 1998, HMOs performed a bit better than in the previous couple of years with average stock prices rising 7% over the course of the year compared to a drop of 11% from 1995 to 1997 but health services companies did quite a bit worse in 1998 and saw stock values fall by 19%. Many anticipate that slow recovery will continue for HMOs in 1999, but not to historic levels of stock price growth.
This Fact Sheet is also available in PDF format.Return to top
A Financial Overview of the Managed Care IndustryFact Sheet Part 1 Fact Sheet Part 2
A fact sheet on the growing influence of for-profit organizations; trends in the stock prices of HMOs and health services companies compared to the overall stock market; recent HMO activity such as premium increases and mergers and acquisitions; and issues related to the financial aspects of HMOs.
A new survey of parents and kids ages 10-15 on topics such as sex, AIDS, violence, alcohol and drugs. The survey was conducted for the Kaiser Family Foundation and ChildrenNow, as part of a national initiative called Talking With Kids About Tough Issues. More information on the campaign is available at www.talkingwithkids.org.