Health plans reduce investment incomes

Not surprisingly, all health plans have been hit hard by major reductions in their investment income. Case-in-point: Los Angeles-based HealthNet, which announced changes in the responsibilities of senior executives after reporting lower-than-anticipated earnings for the third quarter.

HealthNet’s third-quarter profit was 17 cents per share, down from 93 cents per share during the same quarter in 2007.Clive Riddle, president and founder of MCOL, a provider of business-to-business health management and managed care resources in Modesto, Calif., compares third quarter 2008 and 2007 investment income results as a percent of total revenue for selected companies.

“Unlike much of the rest of the health plan industry, HealthNet’s current woes may have less to do with losses of investment income, and more to do with medical loss ratios, and to some degree, declining commercial membership,” says Riddle.

According to Riddle, for HealthNet, commercial medical loss ratios increased from 82.9% in the third quarter 2007 to 86.7% in third quarter 2008. Government-contract, including Medicare, medical loss ratios increased from 92% to 95% for those same periods. Commercial membership decreased 145,000 during that timeframe.

HealthNet allocated and attributed its lowered guidance on 2008 earnings per share (from S2.90 to $1.87) as follows:

• Increased commercial medical loss ratio: 69.9%

• Increased Medicare medical loss ratio: 17.5%

• Decreased commercial membership: 5.8%

• Reduced investment income: 6.8%

“If the lowered guidance was primarily due to investment income, HealthNet would be in good company,” Riddle says. “But being the problems are mostly attributable to operational performance, the board felt a need to act now.

“Chairman and Former CEO Roger Greaves has been at the other end of a re-alignment during his tenure with HealthNet, and such decisions obviously aren't taken lightly. Not only is HealthNet looking strongly to [COO] Jim Woys to help turn things around, but also Steve Sell, who has just been named CEO of their largest operating unit, HealthNet of California.”