The managed-care industry got too big for its britches in recent years, and now it's getting back to basics, according to a new report from Minneapolis-based InterStudy Publications.
Detailing trends from 1987 to 1997, the InterStudy HMO Trend Report notes the declining profitability of HMOs since 1994. The report outlines how rapid growth and expansion into other types of products, such as point-of-service plans and Medicare HMOs, led to low profit margins.
From the 1980s through the early 1990s, HMOs kept premiums low to attract new enrollees, and it worked: By 1997, more than 40% of the commercially insured population was enrolled in HMOs. But some companies kept premiums so low the revenues generated didn't even cover their medical and administrative costs. The results were low profit margins and a flurry of HMO failures.
The two charts below provide a vivid picture of the current state of managed care.