Study predicts solid earnings for MCOs

Sunday, March 2, 2003

March 3, 2003

NEW ROCHELLE, N.Y. - The managed care industry will have another solid year in 2003 with industry net income up 16%, according to the 10th annual Outlook for Managed Care, 2003, prepared by Corporate Research Group, Inc.

Industry-wide profit margins are also projected to expand in 2003 as double-digit premium rate hikes outpace increases in medical costs. Reductions in administrative costs through the use of electronic information technology are also helping to boost margins.

According to the Outlook for Managed Care, 2003, industry net profit margin-including for-profit and not-for-profit health plans-will hit 2.4% in 2003, up from 2.2% in 2002. Among publicly traded managed care companies, net margin is higher. Overall, however, managed care remains a low-margin business vulnerable to unexpected increases in medical costs, the study states.

"The managed care industry is on a roll," said Carl Mercurio, president and publisher of Corporate Research Group, Inc. "Industry profit margins should expand through 2005."

Managed care industry revenues are projected to increase 7.3% in 2003 to $213 billion on top of a 7% increase in 2002, the study says. The only downside will be fully funded HMO and POS enrollment, which the report projects will drop another 3% in 2003 to 67.9 million, after declining 4.5% in 2002.