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Medical Costs Up 12 Percent; Industry Reports Second Year of Operating Losses

Posted on: Wednesday, 18 April 2007, 12:00 CDT

ST. PAUL, Minn., April 18 /PRNewswire-USNewswire/ -- Payments for doctor visits, hospital stays and other medical care costs increased 12 percent in 2006, while revenue from health care premiums increased 11 percent for Minnesota's eight nonprofit health plan companies. Per person spending also increased, up 11 percent in 2006, while premiums increased between 6 and 6.7 percent on average. The result was an overall operating loss of $86.6 million for the industry.

The Minnesota Council of Health Plans, the industry's trade group, reported details for medical care spending of employees and individuals in fully insured plans. These details include:

-- 15 percent increase in inpatient hospital costs -- 14 percent increase in emergency services costs -- 7 percent increase in outpatient hospital costs -- 4 percent increase in physician services costs -- 6 percent decrease in pharmacy services costs

"This double-digit increase in overall medical care spending reinforces the need to continue significant investments in efforts to improve health care quality, value and individual health. This is an issue where every individual contributes to the solution," said Julie Brunner, executive director of the Minnesota Council of Health Plans.

Overall, 91 cents of every premium dollar was dedicated to patient care, while 9 cents was spent on administration. Examples of administrative costs include health care taxes and assessments, regulatory compliance work such as audits, health education and health improvement activities for members, and more.

Health plans invested more than $175 million of administrative costs in health improvement and disease management -- programs designed to help people improve their health and quality of life while reducing health care expenses. These investments include helping people with chronic diseases manage their illness, coordinating care for people with complex medical conditions, and providing education and support for those who want to quit smoking, lose weight or participate in other activities to improve their health.

Overall enrollment stable; small employer, state public program enrollment drops

Overall enrollment grew by 1 percent, to 4.1 million people. -- Fully insured small group plan (2 to 50 employees) enrollment dropped 2 percent or by 7,991 people. Small group enrollment saw a similar decline the previous year. -- HMO enrollment dropped 8 percent or by 81,667 people. -- Enrollment in Minnesota Health Care Programs for low-income individuals dropped by 31,791 people, or nearly 8 percent. Since 2004, enrollment in Prepaid Medical Assistance, General Assistance and MinnesotaCare has dropped by 40,443 people. -- Enrollment in Health Savings Account or Health Reimbursement Account (HSA/HRA) qualifying plans rose 50 percent to 243,205 people.

HSA/HRA qualifying products have lower premiums, higher deductibles and savings accounts. HSA accounts follow employees if they leave a job and can be invested to use for future medical expenses.

"The increasing enrollment in HSAs and other products that give employers and consumers more options is a positive sign that many Minnesotans are taking a greater stake in making decisions about their health care," Brunner said.

"The fact that enrollment is decreasing in the safety net programs is of great concern," she added. "Lower income Minnesotans with coverage through the state's safety net programs are ensured access to care and also receive education, support and services offered by the health plans. This drop may be a sign that the number of uninsured people in the state is continuing to increase and that has an impact on all of us."

Reserve income tapped to pay expenses

For the second year in a row, the industry posted an operating loss. In 2006, the loss totaled more than $86 million. The industry used money generated from investing its reserves to cover the operating shortfall. Minnesota's nonprofit HMOs now hold an average of 2.39 months of expense in reserve, down from 2.53 in 2005. Insurance company reserves are at an average of 2.68 months of expense, down from 3.30 in 2005.

"Reserves are needed to protect consumers from the cyclical nature of the health insurance business and from unpredicted expenses that impact the health of the community," Brunner said. "It's important for the industry to have these funds in order to cover the operating losses in years such as this."

State statute requires Minnesota's health plans to submit reports on their financial status. The reports are independently audited to comply with generally accepted accounting principles, standards of the Financial Accounting Standards Board, and definitions and standards promulgated by the National Association of Insurance Commissioners and the State of Minnesota.

Established in 1985, the Minnesota Council of Health Plans is a trade association of eight licensed nonprofit health plans. Council members have pioneered a style of health care that has improved quality and consumer satisfaction and expanded access to health care for all Minnesotans. The Council and its members are leaders in health care reform, practice guidelines development, technology assessment and data collection and analysis.

Minnesota Council of Health Plans

CONTACT: Eileen M. Smith of Minnesota Council of Health Plans,+1-651-645-0099 x11, cell, +1-612-840-4554, smith@mnhealthplans.org; MonikaStrom of Blue Cross Blue Shield-Blue Plus, +1-651-662-6889; Gardner Lepp ofFirst Plan of Minnesota, +1-218-529-9957; Pat Lund of HealthPartners,+1-952-883-5308; Larry Bussey of Medica, +1-952-992-8013; Bonnie Hays ofMetropolitan Health Plan, +1-612-543-3338; Marcus Merz of PreferredOne,+1-763-847-3201; Ruth Krystopolski of Sanford Health Plan, +1-605-328-6801;Wendy Wicks of UCare Minnesota, +1-612-676-3567

Source: PRNewswire-USNewswire

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