Non-profit HMOs facing money crunch

By Phil Galewitz,
Associated Press writer

NEW YORK -- Harvard Pilgrim Health Care, Massachusetts' largest health maintenance organization, was taken over by the state in January after losing $150 million in 1999.

Penn State Geisinger Health Plan, the nation's largest rural HMO, covering 300,000 people in central Pennsylvania, lost $2.3 million last year.

And Kaiser Health Plans, one of the nation's largest and oldest HMOs, has lost more than $550 million since 1997. It recently stopped doing business in several Eastern states.

That HMOs are losing money is nothing new. But when health plans like these are operating at a loss, consumers might want to take notice -- all three are not-for-profit and rated among the 40 best HMOs in the nation, according to the National Committee for Quality Assurance, a group that evaluates HMOs.

The problems at Harvard, Penn State-Geisinger and Kaiser highlight a startling reality for non-profit health plans: High ratings don't help the bottom line. Non-profit HMOs say they're often hurt by for-profit rivals that charge lower premiums and pay doctors less.

"The real problem is people do not care about quality; the marketplace only cares about price," said Harris Berman, chief executive officer of Waltham, Mass.-based Tufts Health Plan.

Tufts was one of 15 non-profit HMO that made the NCQA's list of the top 40 HMOs, a high proportion, considering that only about 20 percent of the nation's HMOs are non-profit. The NCQA report, issued last October, measured HMOs on how well they improved the health of their members and provided customer service.

Whether non-profit HMOs actually provide better care than their for-profit counterparts remains the subject of debate. A report published in July in the Journal of the American Medical Association indicated that the desire by for-profit HMOs to make money compromises care for their members.

The study, authored researchers from Harvard Medical School and Public Citizen Health Research Group, found not-for-profit HMOs are more likely than investor-owned plans to make sure members get early prenatal care, immunizations and other preventive tests and treatment.

Sidney Wolfe, an author of the JAMA study and director of the Public Citizen Health Research Group, contends that non-profits spend a larger percentage of their premium revenue on medical care than for-profits. "Non-profits view themselves as more-service orientated," he said.

Consumers generally regard non-profits HMOs in a more favorable light than they do for-profits, but HMO executives say employers and individuals buy according to what an HMO charges. They rarely ask about non-profit status.

"Individuals make decisions based on what family and friends say and whether their physician is in the network," said Howard Hughes, Penn State Geisinger's senior vice president of health plans. And most employers, he said, focus heavily on price.

An HMO member, Christelyn Russell, of Lancaster, Calif., said, "I never thought about it," when asked if her plan's profit status was important to her. Like many companies, Russell's employer gave her only one health insurance option, a non-profit Blue Cross and Blue Shield plan.

However, she said, "even if I had the choice, I would pick a non-profit because I think they have less incentive to preclude care."

Another reason members often don't know whether plans are for-profit or not is that the non-profits don't market themselves based on their status.

"How would I even know if the plan was for-profit or non-profit?" said Greg Illson, of Croton-on-Hudson, N.Y, a member of Aetna U.S. Healthcare. "In choosing a plan I look at the fees, the availability of doctors and benefits."

In 1998, 113 non-profit HMOs lost a total of $357.7 million while 323 for-profit HMO lost $272.7 million, according to Weiss Ratings, a Palm Beach Gardens, Fla., company that reviews HMO finances. Despite raising premiums, non-profits and for-profits seem to be equally struggling this year, said Melissa Gannon, a Weiss' vice president.

In tough times, for-profit publicly-traded HMOs such as Aetna and United HealthCare have the advantage of raising money through the stock market. Non-profits have more limited ability to raise money through selling bonds.

That difference is what is driving some non-profit plans to convert to for-profit status. Empire Blue Cross and Blue Shield, one of the largest health plans in New York, is making the switch. HIP Health Plans, which had its New Jersey operations go bankrupt in 1998, says it's considering a for-profit conversion.

Both non-profit and for-profit HMOs have stumbled based on management mistakes, industry watchers say. For example, non-profits such as Tufts held premiums down in the late 1990s to try to attract and retain members. At the same time, medical costs moved higher.

"We had been in a price war for years and could no longer support it," said Tuft's Berman.

Blaming rising medical costs, Tufts recently announced plans to exit New Hampshire, Maine and Rhode Island, forcing nearly 150,000 members in those states to find a new health plan. Tufts still has about 955,000 members in Massachusetts.

Uncertainly surrounds Tuft's chief rival, Harvard Pilgrim. The Massachusetts Hospital Association estimates Harvard Pilgrim owes hospitals in the state more than $300 million. Since being taken over by the state Jan. 4, the state is making sure that all the HMO's bills are paid, and state officials and the investment firm Salomon Smith Barney are working on a rescue plan for the HMO, which has 1.1 million members in Massachusetts.

The outlook is better for some other non-profits. After pulling out of markets from North Carolina to New England, Kaiser said it expects to come close to breaking even for 1999. That would be a big improvement after a $288 million loss in 1998.

And Danville, Pa.-based Penn State Geisinger expects to break even in fiscal 2000 after correcting computer problems that affected its ability to pay claims last year.

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