A.M. Best Special Report: Provider-Owned Health Plans Maintain Stable Underwriting Results

Business Wire, Sept 18, 2007

OLDWICK, N.J. -- Provider-owned and affiliated health plans took advantage of their unique position to post relatively stable underwriting results in 2006, weathering competitive pricing pressures from national insurers and Blue Cross Blue Shield Plans, according to a special report by the A.M. Best Co.

* Provider-owned or affiliated plans are able to secure good discounts from their owner/affiliates, deliver more efficient care and market themselves using the respected image of their provider owner/affiliates.

* Highly integrated health care systems can implement cost-sharing programs for technology, medical management and marketing, while drawing in members of the health plan as patients.

* The 2006 underwriting margin for the 99 health plans in this study held steady at 2.3%, although this is a decline from 2004 and 2003 margins of 2.7% and 3.0%, respectively.

* The median medical loss ratio increased 50 basis points in each of the past two years, reaching 87.7 in 2006, as medical cost trends have resumed their climb.

* Higher cost sharing by employees and growth in consumer-driven health plans are helping to contain increases in medical loss ratios.

* Expiring patents on expensive, brand-name drugs have increased the availability of cheaper generic substitutes, but new technologies, increased use of diagnostic technology and new prescription drugs continue to inflate the medical cost trend.

* Many integrated delivery systems are investing in electronic medical records and other technology, raising administrative cost ratios that must be spread over a relatively stagnant membership base.

* Total membership slipped by 0.2% in 2006, continuing a four-year trend, as employers' participation in HMOs and PPOs gives way to self-funded products.

* The health plans' capital and surplus continued to strengthen in 2006, rising by 16.2% in 2006, but A.M. Best does not expect significant increases in the medium term because of pricing pressure.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.