New Jersey HMO Profits & Health Care Costs

Understanding HMO Profits & Health Care Costs.

According to 2009 statistics published by the New Jersey Department of Banking and Insurance:

• Eight of the 11 licensed New Jersey HMOs had net losses in 2009, and three had net profits.
• The aggregate profit margin for all HMOs was 0.58%, or about ½ of one percent.
• The aggregate loss ratio (i.e., ratio of claims paid to providers/premium) for all carriers in all markets (individual, small employer, large employer, NJ FamilyCare) was 89.5% ($8,249,965,398 in direct claim payments/$9,221,304,370 in premiums), well above New Jersey’s statutorily required levels (80% MLR), and the new federal standards.  The other 10.5% went to pay state and federal taxes and assessments, consumer services, provider support and marketing, premium collection, processing claims payments, compliance, other administrative costs, and any profit).
• Profits are affected by minimum loss ratio standards. Since 1993, New Jersey has required carriers to file rates with DOBI for review, and requires carriers to provide refunds to consumers if minimum loss ratios are not met.  Since 1993, over $122 million has been returned to consumers, protecting consumers more effectively than prior approval of rates requirements.

• “It’s a little striking when all 11 of the FORTUNE 500 health insurance companies had less profit last year than [just] one pharmaceutical company. So the notion of identifying the health insurance industry as the culprit on the issue of health care costs seems to be a little absurd. It’s important that we not confuse political theater with the reality of the issue.” Former Tennessee Governor Phil Bredesen (D)
• According to Yahoo! Finance’s latest analysis of quarterly financial data, the net profit margin for the entire health care sector is 15.55%. Using the same index, health plans have a 4.7% net profit margin. This ranks the health insurance plan industry 12th out of the 16 industries that make up Yahoo! Finance’s health care sector.
• “With the nation’s health care spending estimated at $2.5 trillion this year, even the elimination of insurers’ profits and executive compensation would lower health care spending by just 0.5 percent.” (Kaiser Health News, “Ad Audit: What If?,” 06/19/09)

• Insurance premiums reflect the underlying costs of care.
• Premium pricing is constructed to match expected medical cost increases with premiums, while helping patients and employers hold down costs and access appropriate, quality care.
• The key factors that account for medical inflation include: (1) health care provider price inflation, (2) greater volumes of treatment, and (3) the rising burden of chronic disease.

• New Jersey requires high out-of-network payment levels in individual and small group coverage, in some cases as high as 800% of the Medicare rate.
• New Jersey has a proliferation of non-network ambulatory surgical centers with high charges.  And, as a national ASC industry publication noted, “In New Jersey, OON ASCs have historically benefited from very lucrative reimbursement rates.”
• New Jersey permits, under certain circumstances, providers to self-refer patients to facilities in which they have a financial interest.
• Unlike the federal government and many states, New Jersey does not have a specific prohibition on waiver of cost-sharing when used as an inducement. Medicare and other states consider such conduct insurance fraud.