State HMOs suffered operating losses in 1997

by Melanie Evans

The first of April was no joke for the state’s health care organizations who reported operating losses of $54 million for 1997.
Although the organizations promised rate increases and further cost-saving measures to turn the trend around in 1998, this year’s belt-tightening won’t mean any changes for the 148 Medical School residents who train at HealthPartner’s Regions Hospital in St. Paul and other clinics owned by the health maintenance organization.
Last year’s losses will not have an impact on the educational agreement between the University and HealthPartners, said Kathy Cooney, chief financial officer at HealthPartners.
Cooney added that medical education, long notorious for inflating health care costs, did not contribute to the unexpected shortfall.
“We have found economical ways to include residents,” she said.
Funds from the federal government subsidize residents’ education in hospitals, said Roby Thompson, associate dean for clinical affairs in the Medical School. Reduced payments from clients shouldn’t affect support for medical education, he said.
Minnesota’s second largest HMO, HealthPartners, pulled $9.8 million from its reserves in 1997 to offset its operating losses.
The state’s health insurers took a hit for the second year in a row after unexpected expenses drove costs up and tight competition kept premiums down.
According to the Minnesota Council of Health Plans, a trade group of Minnesota nonprofit health plans, HMO expenses rose almost 1.5 percent faster than revenues generated from premiums in 1997, which equates to a $54 million loss.
While investment returns from state-mandated reserve funds cushioned the deficit, the insurers will raise their premiums for the upcoming year, said Michael Scandrett, executive director of the Minnesota Council of Health Plans.
He added that miscalculated costs prevented the health systems from raising their prices to offset their losses.
Scandrett attributed the HMOs’ growing expenses to the availability of new, more costly drugs and technology and an aging population that requires more medical attention.
A natural upswing in doctors’ visits also drove the health systems’ costs up in the past two years, Scandrett said. More clients than predicted sought medical care in 1997. Enrollment also increased from 2.3 million to 2.4 million, while premiums remained adjusted for the lighter traffic of previous years.
The lower premiums of recent years might have been artificial, said John Kralewski, head of the School of Public Health’s Division of Health Services Research and Policy.
For all the anger doctors feel toward managed care, the organizations might not be as influential as perceived when it comes to trimming costs, Kralewski said. The price hike might indicate the HMOs’ cost-cutting measures only scratch the surface, and more consistent measures might be needed to make health care truly cost-effective, he said.
“This is nothing new, I wouldn’t worry much about it,” said James Toscano, executive vice president of the Institute for Research and Education, a subsidiary of HealthSystem Minnesota.
The market cycle will adjust itself and insurance premiums will catch up with costs in the next three years, he said.
Health care costs will rise again, he added, suggesting concerns should focus not around steeper premiums, but rather around making health care more affordable to lower-income Minnesota residents.