Managed-care companies should get significant relief through premium increases this year, but higher revenues will likely provide only a brief respite before more trouble.
The latest shocker came in mid-December, when Aetna officials announced their planned acquisition of Prudential HealthCare, the long-troubled healthcare unit of Prudential Insurance Co. The unit had been on the market for more than a year, and its $1 billion sales price places its value per managed-care enrollee far below those of earlier Aetna acquisitions. That appears to substantiate fears that the managed-care industry will continue to face intense pressure in the coming year.
Pharmaceutical costs are skyrocketing, many doctors and patients are rebelling against managed-care limitations, and HCFA is struggling to reconcile the demands of the 1997 balanced-budget law against the calls for higher reimbursement.
Meanwhile, large employers and purchasing coalitions are dismayed about premium increases in 1998, the highest in several years, and the even-higher rates forecast for 1999.
Industry leaders such as Kaiser Permanente, Oxford Health Plans and United HealthCare Corp. suffered losses in 1998, and all hope that higher 1999 premiums and selective pruning of noncore products and markets will repair some of the damage. But some observers believe that in light of recent financial and operational bombshells, HMOs must rethink their structural underpinnings and their raison d'etre. With costs rising and quality of care still a major issue, skeptics wonder what kind of management is being provided by managed care.
The casualties are mounting. Kaiser suffered its first loss ever in 1997, a $266 million flood of red ink that the managed-care giant expects to match or exceed when it reports its financial results for 1998 early this year. Even though Kaiser has rammed through giant premium hikes for 1999, it may not be out of the woods until it makes other major adjustments and sells some of its plans in non-key markets. In November, Kaiser sold its troubled Texas unit, with about 109,000 enrollees and an affiliated medical group, to Las Vegas-based Sierra Health Services for $124 million.
More consolidation nationally is virtually a given, and major players such as California-based Health Net and PacifiCare Health Systems could be part of the mix. We may also hear more from United and Humana, which saw their proposed $5.5 billion merger fall apart in August in the wake of United's huge second-quarter losses. Humana has been rumored to be on the prowl for new acquisitions.
The public backlash against the perceived inequities of managed care, stoked by labor unions and politicians, will no doubt continue. As a result, managed-care plans will likely face intense political pressure in Washington and from state legislatures, as various "patient protection" bills wend their way through the process.
Exacerbating the situation, more than 50 managed-care plans have announced their intention to pull out of various Medicare markets effective this month. That planned exodus left about 500,000 enrollees across the country scrambling for new coverage. Roughly 50,000 had no other Medicare risk option available.
More departures could further tarnish the image of managed care, which is already a major political disadvantage for the industry.