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Minnesota Health Market Review 2011
Allan Baumgarten, June 2011
Minnesota HMOs and health insurers had their most profitable year ever in 2010, with strong margins on Medicaid as well as employer group business. Enrollment grew for the second consecutive year.
These and other important market developments are analyzed in Part One of Minnesota Health Market Review 2011. The report, released here today, is Allan Baumgarten's 22nd annual report analyzing the Minnesota health care market. He is an independent analyst and consultant based in Minnesota who has also prepared annual reports analyzing health care markets in 11 other states: Arizona, California, Colorado, Florida, Illinois, Kentucky, Michigan, New York, Ohio, Texas and Wisconsin. Part Two of the Minnesota report, to be released later this year, will include an analysis of profitability and care utilization for hospitals in the state and updated information on HMOs.
Among the findings in the new report:
- Minnesota HMOs posted record profits in 2010. HMOs and county Medicaid plans had net income of $264 million, or 3.6% of operating revenues of $7.3 billion. They had net income from operations of $194.3 million plus investment income of $69.8 million. In the past 15 years, Minnesota HMOs posted a 3% margin only once. In addition, the separate health insurance companies also had strong results. Blue Cross Blue Shield of Minnesota had net income after taxes of $100.1 million and Medica Insurance Company had net income of $44.1 million.
- Health plans increased their profits on state government plans, especially Medicaid. In 2010, state public programs (Medical Assistance and MinnesotaCare are the largest) accounted for about 46% of revenues but 78% of health plan profits. Minnesota health plans improved their net income on Medicaid plans (not including investment income) from $119.5 million in 2009 to $170 million in 2010. On average HMOs collected $77 more in premiums from the state per member per month than they paid out in medical expenses. Losses on MinnesotaCare offset part of that profit.
- Enrollment in HMOs and county plans increased by 1.9% in 2010. Although enrollment in employer group plans continues to decrease and has now fallen below 300,000, that drop was more than offset by growth in Medicaid and Medicare plans.
- Health premiums continue to grow faster than medical claims, general inflation and the overall economy. The average premium revenues that HMOs collected from their employer customers increased by 7.6% in 2010, from $377 to $406 per member per month. That compares to increases of 9.5% in 2009 and 8.6% in 2008. In four years, the average premium per member per month has increased by $115. In 2010, average monthly medical expenses increased by 4.0%. The spread between premiums and medical expenses for employer plans increased from $44 to $59 per member per month and operating gains increased from $15.2 million to $53.5 million.
- On average, HMOs maintain surpluses that are almost three times the required minimum. At the end of 2010, Minnesota HMOs had combined capital of $1.642 billion, much higher than the amount required under state law. On average, they had capital equal to nearly three months of operation, meaning they could continue to pay claims and overhead for about 90 days even if no revenues were coming in. That is up from 2.4 months in 2009.
Part Two of Minnesota Managed Care Review 2010 is released this week. The reports analyzes hospital performance based on 2009 data and updates information on the state's health plans. Sidebars compare Minnesota HMOs with their counterparts in some other states that I study, on measures like market concentration, premium trend, profitability and reserves.
Minnesota Health Market Review 2011, Part One, is scheduled for release in early June. That will be the 22nd annual edition of my Minnesota market analysis. The Part One report will include new data on medical loss ratios for individual, small group and large group products, now required by the Affordable Care Act. Special pricing is available for subscriptions to the 2010 and 2011 reports.
The Part Two report finds:
- Despite a decline in inpatient hospital days in 2009, Twin Cities area hospitals enjoyed their best profits in years. These 27 hospitals posted net income of $485.6 million, or 6.5% of net patient revenues. The previous peak was $319 million in 2005. They increased their patient revenues by 5.8%. Of the large systems, Fairview had the highest margin (8.6%), followed by Allina (7.1%). Park Nicollet and North Memorial had large non-operating losses in 2008, but had strong results in 2009. (See Exhibits 4 and 5)
Although revenues increased, the number of inpatient days provided by these hospitals dropped by 4% in 2009. (See Exhibits 6 and 7) In other words, hospitals have figured out how to increase their revenues while providing less inpatient care. We believe that fewer people have comprehensive insurance benefits and that some are putting off elective procedures.
- The major hospitals in outstate Minnesota reported lower net income in 2009. These hospitals had combined net income of $254.9 million, or 6.2% of net patient revenues. (See Exhibit 8) Their net income peaked in 2007. Rochester Methodist (Mayo Clinic) had net income of $103.3 million (22.2% of net patient revenues), while Essential St. Mary's in Duluth had net income of $41.7 million (11.8%). These hospitals saw their inpatient days drop by 6.5%
- Enrollment in insured health plans increased slightly. Enrollment of employer groups in Minnesota HMOs continues to decline but it was offset in the first half of 2010 by growth in Medicaid (3.2%) and Medicare (nearly 20%) HMO membership.
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