Health plans make more, spend less in 2005

Insurers' medical-cost ratios are lower than ever.

By — Posted March 6, 2006

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If physicians needed any more indication of tightening reimbursement, how about this -- not only did profits for the biggest health plans go up last year, but those plans also continued to cut the percentage of revenue they spend on care.

The medical-cost ratio -- also called the medical-loss ratio or medical-care ratio -- is the key number for health plans in terms of their level of profitability. That ratio, simply, is the percentage of dollars the companies spend on health care, including physician reimbursement.

Whereas 10 years ago many plans had medical-cost ratios in the high 80s or 90s, now the highest percentage among large, publicly traded health insurers is Health Net, at 83.9%. Aetna, which had a medical-cost ratio well into the 90s when CEO John Rowe, MD, took over in 2000, recorded a ratio of 76.9% in 2005, Dr. Rowe's final full year before his retirement. That was the lowest medical-cost ratio for the nation's largest publicly traded plans.

Health plans say they've been able to cut their medical-cost ratios through the use of technology and other means to allow for more judicious, health-effective spending. But the AMA and others have argued that health plans have kept a lid on costs because their market power allows them to unfairly dictate reimbursement terms to physicians.

In the eyes of some Wall Street analysts, plans might have pushed medical-cost ratios as low as possible. In part, that's because efficiencies due to mergers are not expected to go further.

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More in, less out

Profits for the largest plans went up.

Revenue 2004 Revenue 2005 Earnings 2004 Earnings 2005 Remarks
Aetna $19.9 billion $22.5 billion
$2.3 billion ($7.15 per share) $1.6 billion ($5.40 per share)
2004 results included a $775 million tax refund for businesses sold
Cigna $18.2 billion $16.7 billion
$1.4 billion ($10.46 per share) $1.6 billion ($12.52 per share)
2005 results are for all business
Health Net $11.6 billion $11.9 billion
$42.6 million ($0.38 per share) $229.8 million ($1.99 per share)
2004 total reflects monies paid toward settling RICO lawsuit against health plans
Humana $13.1 billion $14.4 billion
$47.1 million ($1.72 per share) $64.6 million ($1.87 per share)
Health Group
$37.2 billion $45.4 billion
$2.6 billion ($1.97 per share) $3.3 billion ($2.48 per share)
$20.8 billion $45.1 billion
$960.1 billion ($3.05 per share) $2.5 million ($3.94 per share)
2005 revenue includes Anthem-WellPoint, WellPoint-WellChoice mergers

Medical-cost ratios -- the percentage of dollars spent on health care, including physician reimbursement -- are in the low 70s or high 80s. (Cigna's 2005 ratio refelcts commercial HMO business only.)

2005 2004 Change
Aetna 76.9% 77.8% up 0.9 percentage points
Cigna 82.3% 82.4% essentially flat
Health Net 83.9% 88.0% up 4.1 percentage points
Humana 83.2% 84.1% up 0.9 percentage points
UnitedHealth Group 78.6% 80.2% up 1.6 percentage points
WellPoint 80.6% 82.0% up 1.4 percentage points

Source: Company 10-K, year-end filings with the Securities and Exchange Commission

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