The top seven health maintenance organizations operating in Orange County vary by how much of their premiums are pumped back into medical care, according to a state professional association’s report.
The California Medical Association’s Knox-Keene Health Plan Expenditures Summary shows that the amount of premiums going to medical care in fiscal 2000 ranged from a high of 96 cents on the dollar for Oakland-based Kaiser Permanente, OC’s largest HMO, to a low of 77.5 cents for Thousand Oaks-based Blue Cross of California, OC’s No. 3 HMO.
As for Cypress-based PacifiCare of California, the association’s report showed it allocated 84.3 cents of every premium dollar into medical care, 8.8 cents into administrative costs and 6.9 cents into profit during the report period. PacifiCare of California is a subsidiary of Santa Ana-based PacifiCare Health Systems Inc. The report, which is compiled from state data, dubs the cents on the dollar figure a “medical-loss ratio.”
PacifiCare spokesman Tyler Mason said the report “does not clarify for the consumer why a staff-model HMO, such as Kaiser, may appear to spend more money on medical care than a network model based on its medical-care ratios.”
“For example,” he said, “because a staff model employs its own physicians, all the costs associated with the credentialing and payment of physicians are reflected in a staff model’s (ratio). However, in a network model, these costs are captured in the plan’s administrative costs.”
Kaiser, as a staff-model HMO, employs its doctors and owns its medical groups. But the non-profit HMO brushes off the apples vs. oranges arguments, saying that how healthcare dollars flow to patient care is “what matters to plan members and purchasers,” according to Barbara Shipnuck, a Kaiser spokeswoman.
“The CMA, for several years, has shown we spend 95, 96 cents of every dollar on healthcare,” said Dr. Kenneth Bell, Kaiser’s OC medical director and a California Medical Association official. “Other insurance companies can’t do that. It’s very difficult.”
Steve Thompson, the medical association’s chief lobbyist, calls the report neutral in its data gathering.
“For every health plan, a common reporting format is required. We do not touch, alter or change the data,” he said.
But the San Francisco-based association “continues to have major concerns as to the amount of health care funds that are being used for administration or placed in the profit column rather than providing for the care of patients,” said Dr. Frank Staggers, the group’s president, in a statement.
Others have different concerns. The Sacramento-based California Association of Health Plans says it’s worried about the report’s “suggestion that all administrative costs are waste,” said spokesman Bobby Pena. The report’s methodology was better suited to traditional health insurance, rather than managed care, he argued.
On administrative costs, the plans ranged from a low of 2.7 cents on the dollar for Kaiser to a high of 16.8 cents for Blue Cross. PacifiCare said its administrative costs were running around 10% as of Dec. 31, “well below” a federal regulatory recommendation of such costs making up 15% of revenue.
Income/profit figures ranged from a low of 1.2 cents for Kaiser to a high of 8.1 cents for Blue Cross. Blue Cross’ figures include preferred-provider organization and point-of-service plans.
“The medical-loss ratio is not reflective of a health plan’s success in meeting its customers’ needs,” said John Cygul, vice president of investor relations for WellPoint Health Networks Inc., Blue Cross’ Thousand Oaks-based parent company. “It doesn’t reflect differences in operations between various companies.”
Blue Cross’ overhead costs are higher, he said, because it has almost 2 million members in individual or small-group plans.
“For the small group and individual markets, we pay commissions to agents and brokers,” Cygul said. “That increases access to healthcare; that’s a positive.”
The profit/income ratio also doesn’t take into account taxes paid by the health plan, Cygul said. After taxes, Blue Cross “makes 4 or 5 cents on the dollar. That’s a lot different,” he said.
Besides PacifiCare, Blue Cross and Kaiser, plans with large OC enrollments that were examined include: Aetna U.S. Healthcare of California, Blue Shield of California, Cigna HealthCare of California and Health Net. Those plans counted around 1.3 million local members as of Dec. 31, according to the latest Business Journal HMO list.
In other matters, the association’s report showed that no California HMOs were on the brink of insolvency during the year, even though there were instances of group medical practices closing their doors because of reimbursement issues. One prominent local example was Anaheim-based KPC Medical Management Inc., which shut down late last year after management turmoil and ongoing, unsuccessful attempts to negotiate higher rates from health plans it contracted with. n
