Jon Gabel by gfv15635

VIEWS: 0 PAGES: 16

									Competition among Health Plans


              Jon Gabel
            Vice President
    Health Research and Educational
                 Trust
               Objectives
• To review recent trends in health care costs
• To examine the underwriting cycle in recent
  years
• To examine the pattern of entry into local
  insurance markets
• To assess why insurers have not entered
  markets in recent years
           Increases in Health Insurance Premiums
          Compared to Other Indicators, 1988-2002

20%

18%                    18.0%
16%

14%                             14.0%
                                                                                                                                      12.7%
12%          12.0%
10%                                                                                                                            11.0%
8%                                                          8.5%
                                                                                                                        8.3%
6%
                                                                                                                 4.8%
4%                                                                                                                          3.4%
                                                                                                                            1.6%
2%
                                                                                          0.8%
0%
        1988      1989     1990     1991      1992     1993     1994      1995     1996     1997       1998   1999   2000   2001   2002


              Health Insurance Premiums                                 Workers Earnings                      Overall Inflation
 Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999, 2000, 2001, 2002; KPMG Survey of Employer-Sponsored Health Benefits: 1988,
 1989, 1990, 1993, 1996.
 Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.
Percentage Increase in Underlying Health Care
            Spending, 1991-2001,
               for All Services

                      12
                                                                                            10.0
                      10
Percentage Increase




                                                                                      7.8
                       8                                                      7.1
                            6.9   6.6
                                        5.0                            5.3
                       6
                                                                 3.3
                       4
                                              2.1    2.2   2.0
                       2

                       0
                           1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

                           Source: Strunk, Ginsburg and Gabel, Health Affairs, 2002
                    Trends in Provider Revenues from
                   Non-Medicare Patients, 1991 – 2001,
                   (Annual Percent Change Per Capita)

             20

             15

             10
Percentage




              5

              0
                   1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
              -5

             -10
                    Hosp. Inpat.   Hosp. Outpatient   Physician   Precription Drug
  Blue Cross-Blue Shield Underwriting
     Gains and Losses, 1990-2002
       (in percentages of revenue)
  3
                                                                                                   2.4
2.5                            2.2
  2                                                                                          1.7
        1.5
1.5                                   1.3
               1.1 1.1
  1                                                                                  0.6
0.5                                                                          0.1
  0
-0.5
                            93

                                     94

                                            95

                                                    96

                                                            97

                                                                    98

                                                                           99
       90

              91

                    92




                                             -0.2




                                                                                  00

                                                                                  01

                                                                                  02
                                                                                20

                                                                                20

                                                                                20
 -1
                                                       -1             -1
-1.5                                                         -1.2

Source: Author’s analysis of unpublished data provided by the Blue Cross-Blue Shield Association
Average Expenses and Profits for Publicly Traded
          Managed Care Companies

                1.8     3.1    4.4
100%   1.8    2.2     3.3     3.3
 80%

 60%                                 Income
                                     Other Net Expenses
 40%   79.3   77.9    77.4    76.3   Sales, Admin. Expenses
                                     Benefit Expenses
 20%

  0%
       1999   2000    2001    2002
         Decline in Investment Income, 1999-2002


6
                    5
5                             4.4
                                       4.1
4                                            3.6   1999
                                                   2000
3
                                                   2001
2                                                  2002

1

0
                              % of revenue

    Source: Lehman Brothers
   A Quick Summary of the Literature about
   HMO Market Structure and Performance
• Greater numbers of HMOs in local markets are associated
  with lower premiums (Wholey, Feldman and Christianson,
  1995).
• Economies of scale apply up to enrollment of 115,000
  (Given, 1996).
• Period of 1994-1997, despite national mergers, was
  characterized by increased competition in local markets
  (Christianson et al, 1997).
• Concentration in the HMO industry is growing nationally,
  (Feldman, Wholey and Christianson, 1999) but it is local
  markets that determine level of competition.
 New Commercial HMOs: National Figures,
             1980-2001
60                              56
                           54
50

40
                                                               31 32
30                    26                                               27
         19                          21
20
                                                          14                14
              12 12                               11 11
     9
10                                        6 5                                    5 5
                                              3                                        1 2
 0
     1980                                    1990                                      2000

     Source: Interstudy
   Why HMO Entry at Local Markets
       Should Be on the Rise
• Four years of underwriting profits
• Growing profitability among publicly traded
  MCOs
• Limited number of competitors in many
  local markets – I.e. Norfolk, Va.
Fewer Commercial HMOs Compete per State,
                                    1996-2001
45
                                         39
40                   36
35                        32                   31
                                                                  29
30
25
20
                                                           15          15   15
15    12                       13
        10                                                   11
                                    8                                            9
10
 5
 0
        Ariz.         Cal.     Conn.       Fla.             Ga.    Ill.      Md.
                                        1996        2001
Source: InterStudy
Fewer Commercial HMOs Compete per State,
         1996-2001 (Continued)

45                                                      40
40
35
30                                                           28
                                                                           26
25                        21
                                    19        19                  19            18
20   16                                  15        15
15                             13
          9     9 8                                                    9
10
 5
 0
     Mass.     Minn.       NJ       NY        NC        Ohio      Va.      Wisc.

                                     1996     2001
     Source: InterStudy
BCBS Underwriting Gains and Losses and
       Number of New Commercial HMOs
35                                        3
                                          2.5
30
                                          2
25
                                          1.5    New Commercial
20                                        1      HMOs
                                                 BCBS Underwriting
15                                        0.5
                                                 Gains and Losses
                                          0
10
                                          -0.5
5
                                          -1
0                                         -1.5
     1990 1992 1994 1996 1998 2000 2002
Why Insurers and HMOs Are Not
   Entering Local Markets
• Most were badly burned by the fierce price
  competition of the mid 1990s.
• Wall Street is leery of MCOs with aggressive
  entry strategy.
Cost of entry is greater today.
   – Employers want wide networks.
   – This requires greater purchasing power.
   – Provider pushback makes it more difficult to secure
     broad networks with substantial discounts.
   – Capital investments in better information systems make
     entry more difficult to finance.
                Conclusion
• Depart with a question rather than an
  answer.
• If HMOs do not enter new markets, the
  current round of inflation is likely to:
  – Last longer
  – Less innovation
  – Less aggressive in controlling costs

								
To top