Industry Overview
Fifty-seven percent of HMOs lost money in 1997, according to a study released by Weiss Ratings, Inc., marking it the third year of declining profit. The gap between premiums and medical costs widened in 1998, the first year of industry-wide loss, with Oxford, Columbia/HCA, Foundation, and MedPartners posting huge losses that unsettled the entire industry. Pressure from providers for higher rates and from consumers for greater choice and fewer restrictions are undercutting the price and utilization controls that kept health care costs in check throughout much of the decade. Failure to invest in critical information systems has in part contributed to the difficulties many HMOs confront. Industry experts forecast continued loses through 1998 as HMOs focus on restructuring, cutting costs, and imposing tougher management of medical expenses. HMOs plan to revitalize profitability by increasing premiums and building stronger operational foundations. Nationally, premiums are likely to increase at a 6 percent to 8 percent in 1999, according to surveys by Watson Wyatt Worldwide, William M. Mercer, Towers Perrin, and other observers, although increases for many major employers may jump as much as 10 percent.
Since 1992, the number of Medicare beneficiaries enrolled in managed care plans has experienced unprecedented growth. As of July 1998, more than six million Medicare beneficiaries were enrolled in more than 450 managed care plans, accounting for nearly 16 percent of the total Medicare population according to the Healthcare Financing Administration (HCFA). However, rising drug prices, federal belt tightening, and management problems plague HMOs, making Medicare managed care an expensive proposition. As a result, health plans are either increasing fees, cutting benefits or leaving markets where federal payments are too low. According to HCFA, as of October 1998, a total of 43 plans have withdrawn from the Medicare program, affecting nearly 415,000 beneficiaries now enrolled in HMOs.
New Jersey Total HMO Market Profile
As of June 30, 1998, total HMO market penetration for the state was
30.4 percent. Twenty-one HMOs currently operate in New Jersey, serving
2.45 million members, an increase of 20,000 enrollees since the prior quarter.
Total HMO market penetration continues to increase steadily since 1997,
as illustrated below.
Commercial products continue to be the source of most growth for HMOs.
At the end of 1997, HMOs served more than 40 percent of the commercially-insured
population, according to data released by Interstudy, a leading researcher
and publisher of managed care data. Five HMOs capture 73.1 percent of the
New Jersey HMO market as shown below, down 1.2 percentage points from the
prior quarter.
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Aetna/US Healthcare continues to be the dominant player in the New
Jersey market, experiencing a steady increase in membership, along with
Horizon BCBS (formerly HMO Blue), over the prior six quarters. In contrast,
Oxford, HIP, and First Option experienced modest declines in membership
since the last quarter, with Oxford reporting the largest drop of 17,000
members. University Health Plans (UHP) experienced a small increase in
membership since the prior quarter.
Oxford, though struggling, remains the third largest HMO in New Jersey. The health plan reported a net loss of $47 million for the quarter ended September 30, 1998. To achieve its goal of profitability by mid 1999, Oxford is raising premiums and cutting costs sharply. Industry experts warn that this plan can only be achieved if Oxford's membership does not fall sharply and reduce revenues. Oxford expects to lose some commercial business in 1999 as a result of rate increases, but there is no information as to how much.
On October 27, 1998, the New Jersey Department of Banking and Insurance (DOBI) moved to seize control of HIP of New Jersey, the state's fourth largest HMO, to rescue the health plan from financial collapse. If successful, it would be the first takeover of an HMO in New Jersey. According to DOBI, ongoing concerns about the plan's ability to meet state net worth requirements prompted the action. HIP's net worth declined precipitously amid increasing debt burden, falling from $15.3 million net worth at the end of 1997 to negative $9.5 million as of June 30, 1998 and negative $20 million as of August 30, 1998. An investigation by the Department of Health and Senior Services (DOHSS) revealed further problems at HIP, including inadequate staffing levels and difficulties in making appointments for patients. The Superior Court issued an order on October 27, 1998 temporarily barring HIP and its medical management contractor, Pinnacle Health Enterprises, from closing any health centers or interrupting enrollee services. A statement released by the DOHSS assures that HIP will continue to provide quality services to its 190,000 plus members, preserve normal fees and make timely payment to providers. The DOBI has asked the court to place HIP in rehabilitation in order to have control of the organization; the state's request will be heard November 9, 1998.
Consistent with the prior quarter, the counties with the highest HMO
penetration are:
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In New Jersey, Oxford lost ground in Bergen, Somerset and Middlesex
counties. HIP lost ground in Gloucester county, displaced by Horizon BCBS
as the third largest HMO. Local leader Aetna/US Healthcare fell to second
place in Sussex county, where Cigna took the position as the county's largest
HMO. UHP's membership declined in Essex county although the plan continued
to gain membership in its other service areas.
Medicaid HMO Market in New Jersey
Statewide, the Medicaid penetration rate is 63.6 percent. Overall,
in New Jersey, Medicaid market penetration has remained relatively flat
over the last six quarters; penetration rates hover between 63 percent
and 64 percent. Oxford continues to drop much of its Medicaid business
across the state, concentrating on core markets in the New York region.
The following HMOs constitute the majority of the total Medicaid HMO market
in New Jersey.
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UHP has maintained its position as the third largest Medicaid provider in Essex county this quarter. The counties with the highest Medicaid penetration include:
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Medicare HMO Market in New Jersey
Approximately 167,473 of the state's 1.1 million elders are enrolled in HMOs, representing a penetration rate of 15.1 percent as of June 30, 1998, falling below the national average of 17 percent. Enrollment in Medicare risk programs has increased steadily across the state over the past six quarters as illustrated below.
Dominant players continue to vary by region, with Aetna/US Healthcare
capturing nearly half of the Medicare market in New Jersey as depicted
below.
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Of note, Aetna/US Healthcare and Oxford both slipped in terms of market
share, with Oxford dropping 1.2 percentage points and Aetna/USHC 1.8 percentage
points in comparison to first quarter 1998 figures. In Essex county, Oxford
slipped to second place, yielding to Horizon BCBS. United Healthcare made
inroads in Sussex county, sharing the position as the third largest HMO
in the county with Oxford. The highest Medicare penetration is found in
the following counties, where Aetna/US Healthcare is the market leader.
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Once lauded as a money-saving panacea for Medicare's escalating costs, coverage for the elderly by HMOs is now being scaled back because of financial setbacks and unexpected costs. Those health plans exiting the Medicare risk market include industry leaders such as Aetna/US Healthcare; Humana; and United Healthcare, which is withdrawing from 86 of 206 counties where it has Medicare plans, including the eastern states of New York, New Jersey and Connecticut. Prudential Healthcare followed suit, announcing in September that it would not renew Medicare risk contracts in New York, New Jersey and parts of four other states effective January 1, 1999. In addition, Oxford announced its intention to capitate payments for Medicare and to slash Medicare HMO enrollment by 17 percent by exiting markets in 24 counties in New Jersey, New York, Pennsylvania, and Connecticut. In New Jersey, Oxford is leaving Sussex and seven other counties in the southern and central part of New Jersey. Oxford will continue to offer a Medicare product in Bergen, Passaic, Essex, Morris, Hudson, and eight other counties, although it is uncertain if benefits for seniors in these counties will change.
Below are highlights of the effect of the cutbacks nationally and in New Jersey as of October 3, 1998.
| Health Plan | # of Members Discharging |
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| United Healthcare |
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| Oxford |
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| Prudential |
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| Aetna/US Healthcare |
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| Humana |
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Seniors that are dropped may enroll in another managed care plan or traditional Medicare. Of the beneficiaries whose managed care plan is cutting them loose, only 10 percent will be left with no managed care option, an indication that payment rates in most counties may be sufficient for the time being. According to news reports, President Clinton urged HCFA to expedite applications of any plans asking to enter a market without a managed care option.
Please contact the Webmaster to obtain maps that provide more detailed information regarding HMO penetration rates for the Medicare, Medicaid, and Commercial markets by county.