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Michigan Health Market 2011
Allan Baumgarten, April 2011
Below is a brief summary of the report, which analyzes hospital profitability and utilization using 2009 data and updates enrollment information and financial results for Michigan health plans through June 2010.
- Michigan hospital systems and health insurers are going through a difficult transition period, trying to overcome the challenges posed by the economic downturn while preparing to seize the opportunities that health reform creates beginning in 2014. For example, Michigan provider systems have responded enthusiastically to the possibility of forming accountable care organizations to contract with Medicare. Health insurers have seen their employer group enrollment steadily declining while enrollment in Medicaid HMOs is growing and will increase more when Medicaid eligibility is expanded.
The report finds:
- Large losses at three of the large Detroit-area hospital systems in 2009 meant that this group of hospitals lost money for the second straight year. According our analysis of data from Medicare cost reports for 2009 fiscal years, hospitals in the area lost $58 million or 0.6% of net patient revenues of $9.933 billion. That was a small improvement over losses of $77.6 million in 2008. Hospitals in the area were profitable between 2003 and 2007, with their best results in 2007: net income of $213.4 million, or 2.3% of net patient revenues.
- Net income also fell at 33 large hospitals in other parts of the state, mostly because of investment losses at the University of Michigan and several other hospitals. This group of hospitals had average losses of 2.4%, compared to positive margins of 0.6% in 2008, 10.2% in 2007 and 8.4% in 2006.
- Inpatient hospital days at Detroit area hospitals dropped for the second straight year in 2009. Rising unemployment, declining population and the growth of high deductible plans are exerting downward pressure on utilization. (See Exhibits 5 and 6) The number of days covered by commercial insurance dropped by 2.9%, though that was partly offset by a growing number of inpatient days covered by Medicaid.
Hospitals in the state are competing for shrinking pie of hospital care volume, as people without coverage or who must satisfy high deductibles are likely deferring elective procedures. The 2009 opening of new hospitals in Novi and West Bloomfield created new capacity while Vanguard, the for-profit company that acquired the Detroit Medical Center hospitals, will compete aggressively for patients.
- Even though commercial enrollment is still declining, membership in Michigan HMOs continued to increase in the first half of 2010. Commercial HMO membership continued to decline, particularly at Health Alliance Plan, and is now less than half of overall HMO enrollment. Enrollment in Medicaid HMO plans (and Medicaid generally) grew by 3.7% during those six months. Priority Health added new members in both its commercial and Medicare plans.
- HMOs had margins averaging 1.6% for the first half of 2010. None of the HMOs reported losses. Of the large plans, Blue Care Network had the best results. And Blue Cross Blue Shield of Michigan had net income of $125.4 million or 3.8% of underwriting revenues.
Michigan Health Market Review 2010 finds: HMOs add members and maintain strong profits
HMOs in Michigan increased their enrollment for the first time in 10 years in 2009 and enjoyed strong profits as well. However, fewer people had insurance through employer group plans and Medicaid and other public programs covered more.
These and other findings, based on an analysis of the finances and enrollment trends of Michigan's health insurance companies, are reported in Part One of Michigan Health Market Review 2010.
Among the findings in the 2010 report:
Enrollment in Michigan HMOs increased by 4.5% in 2009, as Medicaid HMOs added 150,000 new members. About 45% of the state's 2.6 million HMO enrollees are in Medicaid plans, while enrollment in HMO employer plans has dropped to 1.3 million, its lowest level since the early 1990s. Employers have departed for plans that are less comprehensive and less expensive or have dropped coverage altogether.
On average, Michigan HMOs had margins of 2% in 2009. They had net income of $195.7 million, less than in 2008 when they earned net income of $226 million, or 2.6% of premiums.
Medicaid plans were especially profitable, with HMOs posting net income of $97.4 million. On average, Medicaid HMOs spent 83.2% of each premium dollar for medical expenses in 2009.And Medicaid plans will gain numerous new customers when health reform is implemented.
Commercial premium revenues increased by an average of 2.7% in 2009, from $300 to $308 per member per month. That was the lowest increase in the past 10 years. Still Michigan employers paid $62 more per member per month in 2009 than in 2004. Medical expenses for employer groups increased by 4.9%, resulting in lower profits on that line of business.
Enrollment in Medicare Advantage HMOs increased again, though it is still less than 10% of seniors. About 85,000 seniors were still enrolled in private fee-for-service plans in January 2010. Those plans are shutting down because of new federal requirements. Some of those seniors are apparently choosing HMO plans while others, who want broader choice of physicians, are probably returning to Medicare Supplement plans.
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