A.M. Best Reports Continued Losses for HMOs in the State of Texas

Business Wire, Sept 12, 2002

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Sept. 12, 2002

A.M. Best Co. has increased the number of financial strength ratings on Texas Health Maintenance Organizations (HMOs) this year, releasing ratings on 27 HMOs compared to 26 in 2001.

These financial strength ratings include 13 within the secure category while the remaining 14 companies are rated vulnerable. These 27 include three downgrades, four upgrades, two initials, one under review and 17 affirmations.

The Texas HMO market continues its poor performance and weakening financial strength. HMOs throughout the nation have reported improvement in operations, thus able to grow capital in relation with premiums, while Texas HMOs have trailed the rest of the market, reporting net losses of almost $500 million during 2001.

HMOs in Texas as a whole have experienced over 21 consecutive quarters of losses. The declining earnings can be attributed to rising health care costs, insolvent providers and the harsh regulatory environment. Texas continues to struggle with health care and the balance among providers, consumers and employers.

Higher HMO insurance costs are largely dictated by increasing health care expenditures, driven by higher than expected utilization, skyrocketing pharmacy expenses and higher costs of providers and hospitals. A.M. Best expects increases in health care expenses will continue until actions by all parties involved take responsibility in controlling costs.

Insolvent providers have been an issue in Texas, resulting in additional strain to organizations such as Sierra Health Plans and PacifiCare of Texas. Texas providers have the right to collective bargaining with the health company, which allows the providers to join forces to settle on the most advantageous reimbursement rates. Therefore, A.M. Best expects the ultimate result could be both providers and insurers will need to be responsible in managing their health care expenses.

Texas is a highly regulated state, which places additional pressure on the industry by trying to force a balance. During 2001, Southwest Texas HMO, Inc., Aetna Health of North Texas, Inc., Aetna Health Inc. (Texas Corporation) and PacifiCare of Texas, Inc., reported an aggregate net loss of $433 million. Further, the Texas attorney general is fining insurance organizations, alleging they were slow to pay medical claims to physician groups and forcing them into bankruptcy.

The uninsured population continues to grow and will eventually overload Texas' Medicaid program. One of every four residents are uninsured, a rate higher than any other state in the nation. Funding for the uninsured will result in rising costs that will impact the entire health care industry. This will eventually be passed on to the smaller insured membership base to absorb.

A.M. Best continues to monitor the Texas HMO market very closely for additional losses and capital deterioration. A.M. Best notes the equilibrium between provider, consumer and insurer is not anticipated in the near term. Additional turbulence is expected.

The financial strength ratings on the 27 HMOs are as follows:

                                    Current Rating     Previous Rating

Aetna Health Inc. (a Texas Corporation)     A-               A-
Aetna Health of North Texas Inc.            A-               A-
AmCare Health Plans of Texas, Inc.          E                Cpd
AMERIGROUP Texas, Inc.                      C  pd            C pd
Amil International (Texas), Inc.            Bpd              Bpd
CIGNA HealthCare of Texas, Inc.             A-u              A-
Community First Health Plans, Inc.          C  pd            C  pd
Community Health Choice, Inc.               C  pd            C pd
Cook Children's Health Plan                 C pd             C pd
Health Plan of Texas                        Bpd              Bpd
Humana Health Plan of Texas, Inc.           B                B  
One Health Plan of Texas, Inc.              A                A 
PacifiCare of Texas, Inc.                   B                B  
Parkland Community Health Plan, Inc.        C  pd            C  pd
Prudential Dental Maintenance
 Organization, Inc.                         A-               A-
Prudential Health Care Plan, Inc.           A-               A-
Scott & White Health Plan                   Bpd              Bpd
Seton Health Plan, Inc.                     C-pd             Dpd
SHA, L.L.C.                                 C  pd            C  pd
Southwest Texas HMO, Inc.                   A-               A-
Texas Children's Health Plan, Inc.          C pd             Cpd
UNICARE Health Plans Company of Texas       B                B  u
United Dental Care of Texas, Inc.           A-               A-
United HealthCare of Texas, Inc.            A-               A
UTMB Health Plans, Inc.                     Cpd              Cpd
Valley Baptist Health Plan, Inc.            B                C pd
Value Options of Texas, Inc.                C-pd             Cpd

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.