Colorado HMOs had made extensive use of capitation payment arrangements with provider groups, particularly for Medicare plans. However, key hospital systems terminated their capitation contracts in the past year, which is one of the reasons that HMOs may cut back on their Medicare plans. Some of the new physician groups that emerged from the demise of the Columbine IPA soon found that they could not manage capitation risk, and those arrangements ended as well.
According to our analysis, published in Colorado Managed Care Review 2001, the use of capitation declined in 2000 from 37.9 to 28.6 percent of payments. The decline of capitation has helped hospitals improve their financial picture. Consolidation of hospitals and aggressive negotiating with health plans helped boost hospital profits in 1999 and 2000.
Other key findings in Colorado Managed Care Review 2001:
Average premium revenue increased about 15% to $141.10 per commercial member per month as competition declines.
On average, HMOs collected $141.10 in monthly premium revenue from commercial enrollees. That is up 14.9% from $122.79 in 1999. Average premiums had increased more slowly in Colorado compared to other markets, and had even decreased in 1997 and 1998. That was partly because of the high number of competing HMOs - at one point 11 or more HMOs were competing for commercial business in the Denver area. However, four commercial HMOs QualMed, Antero, Sloans Lake and Prudential have been acquired by other HMOs, leaving fewer choices for employers. Two other HMOs - Health Network of Colorado Springs and Pro Acta in Longmont have also gone out of business.
Even with the increased premiums, the industry continued to lose money in Colorado in 2000 and the first half of 2001. HMOs face continued upward pressure on medical costs. Average medical loss ratios have increased from 4% in 1995 to 91% in 2000.
Enrollment of seniors in HMO Medicare+Choice plans dropped by about 11,000 lives in the first half of 2001.
Medicare+Choice plans have been very successful in Colorado, with high market acceptance and profitability. In 1999, about 42 percent of seniors in Denver were in an HMO plan. Kaiser reported a profit of $27.4 million on its Medicare plan in 2000; PacifiCare made $6.2million (even while it lost $29.8 million on commercial business) and HMO Colorado lost $7.4 million.
However, enrollment in Medicare+Choice plans has now begun to drop. Two HMOs ended their senior plans in 2000 and others exited portions of their service area. Increases in payment rates for 2001 have been small in many counties and are projected to increase only a little in 2002. HMO Colorado, owned by Anthem Blue Cross Blue Shield, has announced that it will exit Medicare+Choice at the end of this year, leaving only PacifiCare and Kaiser left in the market.