Texas Health Market Review 2011 finds:
Medicare plans fuel strong HMO profitability;
Hospital utilization lags behind new capacity
Dallas/Fort Worth -- Houston -- Austin -- Medicare HMOs, led by PacifiCare and HealthSpring, drove very strong profitability for Texas HMOs in 2010. And while hospital systems also enjoyed strong net income, their utilization growth has slowed and is lagging behind the new capacity they have constructed.
These and other findings are reported in Texas Health Market Review 2011, Allan Baumgarten's eleventh annual report analyzing the Texas health care market. First published in 1998, it presents a competitive assessment of health plans and hospital systems in the state. Baumgarten, a Minnesota-based analyst, has also published and contributed to reports analyzing health market trends and issues in: Arizona, California, Colorado, Florida, Illinois, Kentucky, Michigan, Minnesota, New York, Ohio and Wisconsin. The new report compares Texas HMOs to their counterparts in those states on several key financial measures.
The new report finds:
By largely exiting the employer market and focusing on Medicare and Medicaid, Texas HMOs have enjoyed strong and growing profits in the last six years. HMOs here now are focused on the niche businesses of Medicare and Medicaid, both of which were strongly profitable in 2010. Overall, Texas HMOs reported net income of $404.1 million in 2010, or 3.3% of underwriting revenues of $12.41 billion. That compares to average margins of 2.6% in 2009 and 4.4% in 2008.
Medicare Advantage plans accounted for 75.4% of HMO underwriting profits in 2010 but only 43% of revenues. HMOs had underwriting income of $414.4 million on their Medicare plans and $106.3 million on Medicaid plans. PacifiCare, owned by UnitedHealthcare, had net income of $414.4 million on its Secure Horizon Medicare plans, which now enroll more than 145,000 seniors in the state. HealthSpring, with 45,000 seniors at the end of 2010, had net income of $68 million on its Medicare plans here. (CIGNA will acquire HealthSpring in 2011.)
Underwriting Net Income for Medicare HMOs, 2010
AmeriGroup and Texas Children's Health Plan were the most profitable Medicaid HMOs, together reporting a total of $80 million in underwriting net income. In the next five years, HMOs are likely to gain several million new Medicaid enrollees. Texas is expanding Medicaid managed care to almost all counties in the state in the next few years. In addition, the expansion of Medicaid eligibility under the Affordable Care Act will create rich business opportunities for Medicaid health plans.
Enrollment in HMOs increased for the fourth straight year. It grew by 7% in 2010 and again in the first half of 2011. Given this growth, it is likely that HMO enrollment will surpass 3.5 million in the next year for the first time since 2002. Enrollment by employer groups, however, continues to drop, as employers have left their HMO plans for less comprehensive and less expensive PPO plans, offered by companies like Blue Cross Blue Shield of Texas and national insurers like Aetna and UnitedHealthcare.
Texas HMO Enrollment, 1994-2011
New hospital construction continues at a rapid pace, even though growth in inpatient utilization has slowed and even fallen in some areas. Hospital systems, both tax exempt and investor owned, consolidated in the 1990s to be more efficient and to improve their negotiating strength with health insurers. They have extended their geographic reach by building new hospitals, ambulatory surgery centers and freestanding emergency rooms in developing areas, like Round Rock (north of Austin), Denton County (near Dallas), Boerne (near San Antonio) and Sugar Land (outside Houston). With all the new construction, hospitals in the Dallas Ft. Worth area have increased their inpatient capacity by 12.1%, but the number of inpatient days grew by 9.6%. The average rate of inpatient occupancy went from 65.6% in 2005 to 64.2% in 2009. In Houston, the number of beds grew by 6.9% from 2005 to 2009, but inpatient days of care grew by only 4.9%. In fact, inpatient days of care dropped by 2009.
Hospitals continue to enjoy strong profits in the major metropolitan areas and across the state. Based on 2009 data from the state's annual survey, hospitals in the Dallas-Fort Worth area had net income of $1.3 billion in 2009, which was 9.1% of net patient revenues. That compares to average margins of 10% in 2007. In the Houston area, hospitals reported net income of $1.151 billion in 2009, an average margin of 8.3%. Their average margin was 7% in 2007. Austin area hospitals had net income of $267.9 million, or 9.3% of net patient revenues. That is much improved over 2007 combined net income of $96.8 million. The HCA-St. David's system is the smaller of the two large systems here, but it had higher net income in 2009; $179.5 million, compared to $48 million at the Seton/Daughters of Charity hospitals in the region.
Excerpts from the report, including the "Texas HMOs at a Glance" exhibit can be viewed in the State Reports section of Copies of Texas Health Market Review 2011 in PDF format can be ordered for $160.00 by calling Baumgarten at 952-925-9121. Fax: 952-925-9341, E-mail: