Hmos Begin Earning Profits after Raising Prices

By Watkins, Robert | THE JOURNAL RECORD, June 21, 1989 | Go to article overview

Hmos Begin Earning Profits after Raising Prices


Watkins, Robert, THE JOURNAL RECORD


Health maintenance organizations once were seen as the brightest star in the firmament of new ideas, the long-awaited alternative for people who had been locked out of the system.

The prepaid approach, moreover, was supposed to be more affordable than conventional health insurance.

Paul Ellwood, the father of health maintenance organizations (HMOs), had some early success in selling the idea to a resistant public in Minnesota, his home state, and for awhile the concept evoked bouquets from those who had grown increasingly restive about sharply rising prices in the health care industry.

From the outset, it was clear that marketing prepaid systems would be a challenge to the new companies sprouting here and there over the landscape. It was difficult for people to break with a past that assured them of seeing the doctor of their choice when they needed help, and the uninsured, those who most needed medical care at lower costs, seemed as elusive as ever.

Still, investors persisted and marketing experts, learning how better to compete with traditional insurance coverage, have since extended health maintenance organizations from one coast to the other. There have been many lean years for health maintenance organization entrepreneurs, not to mention significant losses, caused in no small measure by pricing wars and the expense of reaching large numbers of prospective customers.

At long last, after nearly two decades of struggle, a few of these companies appear to be earning profits. But they have had to raise prices for a change rather than cut them.

According to Interstudy, a non-profit organization whose chief stock in trade in analyzing the performances of HMOs, only 36 percent were profitable last year.

This year, riding the crest of price increases, 73 percent of the country's 607 health maintenance groups are expected to be in the black.

Interstudy's vice president, Lynn R. Gruber, observed:

"Some companies were keeping premium prices artificially low to expand markets, and you can do that only for so long. …

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