Higher Prices Will Boost HMO Quarterly Earnings

Article excerpt

Health maintenance organizations' second-quarter earnings will rise after many raised prices enough this year to cover the rising costs of prescription drugs and hospital visits by their customers.

Oxford Health Plans Inc. and WellPoint Health Networks Inc. will lead the industry's profit growth, helped by mounting pressure to cut U.S. health care costs. United Healthcare Corp. and Healthsource Inc. also will benefit from boosting prices in January.

"This really will be the first up quarter for a lot of HMOs" since the second quarter last year, said ABN Amro Chicago Corp. analyst Peter Costa. "You will see some improved results." Health maintenance organizations, or HMOs, charge a fixed price to provide health care coverage to members for a one-year term, usually beginning in January. The fee is based on their estimate of how much of a plan's services and treatments the members will require during that year. Some HMOs ran into trouble last year when unexpectedly high expenses squeezed profits. The companies weren't able to raise prices to compensate until January and now are beginning to see the results, analysts said. Oxford and WellPoint, though, largely escaped the profit squeeze because they set prices high enough last year. Norwalk, Conn.-based Oxford Health Plans' earnings are expected to rise to 43 cents a share, the average estimate of 18 analysts polled by IBES International Inc., from 28 cents in the year-earlier period. Woodland Hills, Calif.-based WellPoint is expected to earn 75 cents a share, the average estimate of nine analysts, compared with 59 cents a year ago. Earnings for United HealthCare, which analysts said is often an industry bellwether, are expected to rise because the company was able to raise prices while reining in costs. …