Managed care industry's profit outlook is strong

Healthy margins for the insurance plans are likely to persist in 2004, though employers' willingness to tolerate premium increases may be dwindling.

By Robert Kazel, AMNews staff. Dec. 15, 2003.

Big profits for the major publicly traded managed care companies are likely to continue to be the rule in 2004, according to industry consultant KPMG.

The firm says health plans should do well financially as a result of new benefit designs that unload more cost burden upon patients as well as continued hikes in premiums.

But profits and premium increases won't be quite as lofty because insurers will be limited by the magnitude of price increases they can expect plan sponsors to tolerate, said John Fitzgibbon, national industry director for managed care at Hartford, Conn.-based KPMG Consulting.

"They [managed care plans] are all doing very, very well -- better than I thought they would do and probably better than they thought they would do," said Fitzgibbon, co-author of KPMG's recently released "2003 Managed Care Industry Report."

"It's hard for me to believe employers are going to keep paying double-digit increases forever," Fitzgibbon said.

The industry report tracks the financial trends of large publicly traded HMOs over the past several years.

The average premium increase for 2003 has been about 15% for most large health plans and will probably be slightly less in 2004 due in part to slower growth in medical costs, Fitzgibbon said. Plans instituted very large premium increases this year due to overestimation of how sharply medical costs would rise.