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Texas Health Market Review 2009
Allan Baumgarten, Oct 2009
Houston/Dallas-Ft. Worth/Austin - Hospital systems in the Dallas-Fort Worth and Houston area have enjoyed strong net income in the past five year and embarked on huge construction programs. However, they now face significant risks. At the same time, HMOs in the state, especially senior plans, have improved their strong profitability, even as employers moved into other benefit plans or dropped coverage.
These findings and others are reported in Texas Health Market Review 2009, Allan Baumgarten's tenth annual analysis of the Texas health care market. The report presents a competitive assessment of health plans and hospital systems in the state.
Among the report's findings:
Hospitals throughout the state are in the midst of a huge construction boom fueled by consecutive years of strong profits.
Hospital systems, both tax exempt and investor owned, consolidated in the 1990s to be more efficient and to improve their negotiating strength with health insurers. They have extended their geographic reach by building new hospitals in developing area, like Denton County (near Dallas) and Sugar Land (outside Houston).
Based on Baumgarten?s analysis of state data for 2007, hospitals in the Dallas-Fort Worth area had net income of $1.217 billion in 2007, or 10% of net patient revenues. Their average margin was 10.4% in 2006. Houston-area hospitals reported net income of $898.4 million in 2007, an average margin of 7% of net patient revenues. That was higher than their 2006 net income of $632 million.
As unemployment grows in Texas, fewer people have health insurance and those that do often pay high deductibles. This is reducing utilization at a time when hospital capacity is expanding. Hospitals also face high costs for credit and lower returns on their investments, often an important source of profitability.
After years of decline, HMO enrollment in Texas has grown in the past three years. However, employers are still leaving HMOs and the growth has come from Medicaid, CHIP and Medicare Advantage plans.
Enrollment in Texas HMOs increased by 3.9% in 2008 and 7% in 2007. However, enrollment of employer groups continues to decrease, as employers seek plans that are less comprehensive and require addition cost-sharing by enrollees. In 2000, there were 3 million enrollees in HMO employer plans, but that has dropped to about 852,000. The state has expanded its use of HMOs for the Medicaid and CHIP programs, and more seniors, especially in Houston, are choosing Medicare HMOs.
Texas HMOs reported net income of $449.6 million in 2008, or 4.4% of underwriting revenues of $10.156 billion. They had average margins of 4.7% in 2007 and 4.1% in 2006. In 2008, Medicare Advantage plans were the most profitable, reporting $387.6 million in underwriting profits. HMOs contracting with the state for Medicaid and CHIP enrollees were also profitable.
On average, employers with HMO plans paid $74 more per member per month in 2008 compared to 2003
Average premium revenues for employer plans in Texas have increased from $223 in 2003 to $297 in 2008. However, the most recent increase was an average of 1.3% in 2008.
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