Breslin Study Finds Hmo Profits And Premiums Soaring

Neil D. Breslin

June 14, 2006

Senator Neil Breslin (D-Albany) today released a report documenting the soaring profits of New York’s health maintenance organizations (HMOs) -- profits that nearly doubled over a five year period.

The study shows HMO profits increased 93 percent from 2001 to 2005, from $672 million in 2001 to a record $1.3 billion last year. During that five year period, HMOs in New York recorded total profits of more than $5 billion.

"While the oil industry garners all the headlines, HMOs in New York reported massive profits, much of which has come at the expense of working people, small business owners, and state and local taxpayers," Breslin said.

Ever since 1999, HMOs have been permitted to charge whatever premiums they choose, without the approval of the State Insurance Department and with no requirement that rate increases be justified. Breslin has sponsored a measure that would require public hearings before any rate increase of more than five percent is allowed. The measure – which has consistently passed the Assembly – has never been allowed to the Senate floor for a vote, despite the fact that it is now sponsored by Republican Senator Michael Balboni (S.2712).

Breslin’s report found premiums collected by HMOs in the past five years jumped 20 percent, from $14.5 billion to $17.4 billion. However, this growth in premiums outpaced increases in medical payments by more than $1 billion, fueling the surge in profits. "Clearly, HMOs have gotten away with boosting premiums far beyond what was necessary to meet medical costs," Breslin charged.

Remarkably, skyrocketing profits have come even as HMOs lost 14 percent of their customers, many of them undoubtedly priced out of the market. "What other business can lose one of every seven customers, and still manage to double their profits?" Breslin asked.

Those lost customers forced to drop their coverage present a larger problem, especially for New York taxpayers. "Every time another person becomes uninsured, and has to rely on the emergency room for their health care, it adds to the burden of hospitals and, ultimately, taxpayers," Breslin said.

The report also found that despite steady premium increases, the percentage of those premiums paid out to providers has fallen consistently, from 85.3 cents on the dollar in 2001 to just 81.7 cents last year.

"This means HMOs are increasing their take, while reducing the share paid to doctors, hospitals and pharmacies," Breslin said. "HMO executives are getting rich, while those who actually provide health care are getting less."

In addition, HMOs spent $2 billion last year to "administer" and "adjust" claims. This is roughly 14 percent of what they paid providers -- which is almost four times what the Federal government spends to administer the Medicare program.

That figure also represents a 24 percent increase for HMOs administrative costs. "Why did it cost New York’s HMOs 24 percent more money to serve 14 percent fewer customers?" Breslin asked.

Breslin said he was planning to hold a series of public hearings across New York State to gather input from small business, local governments, labor, hospitals, health care providers, and consumers. "While the Governor and the Senate Majority have largely ignored this problem, my Democratic colleagues and I are committed to a thorough examination of this industry, and we will prescribe a cure for the insurance ills that plague New Yorkers," Breslin promised.