March 31, 2000

St. Paul, Minn. – Due to increases in medical costs, patient use of services and state taxes, Minnesota nonprofit health plans' premium revenue fell short of covering their expenses for the fourth consecutive year in 1999, according to reports filed today with the Minnesota Department of Health. Despite another year of operating losses, health plans were able to offset those losses through investment income. At the same time, several health plans improved their financial stability by increasing their state-mandated reserves.

Other major trends evident in the annual financial filings include:

• Patient care expenses increased for the eighth year in a row
• Total enrollment increased slightly
• Amounts paid in state health care taxes increased to $47.1 million
• Enrollment in self-insured plans which are exempt from some state taxes continued to grow
• Administrative costs remained relatively flat at about 9.68 percent of total premiums

"Health care costs and premiums are up again due to a double whammy -- drugs and treatments cost more and the volume is also increasing," said Michael Scandrett, executive director of the Minnesota Council of Health Plans. "Prices are higher due to new, high tech treatments and drugs, but the number of treatments and drugs being provided is also up, which compounds the rate of growth."

Medical expenses continue to rise

In 1995, health plans started to see a dramatic rise in patient use of services and medical costs. The trends continue today. A March survey of Minnesota's health plans exemplifies the trends in patient use of medical services and the prices of those services between 1995 and 1999. Findings include:

• 11 percent increase in inpatient hospital admissions per 1,000 members
• 19 percent increase in preventive care visits per 1,000 members
• 38 percent increase in outpatient surgeries per 1,000 members
• 5 percent increase in office visits per 1,000 members
• 16 percent increase in hospital charges per admission
• 28 percent increase in average cost of a prescription drug

As a result of increases in costs and patient volume, the expenditures for treating patients increased 6.93 percent, from $3.9 billion in 1998 to more than $4.1 billion in 1999. Increases in premium revenue were insufficient to cover health plans' operating costs, resulting in net operating losses of $18.5 million in 1999, compared to $58.3 million in 1998.

"It's a difficult balance. The good news is that greater access and better treatment techniques have improved overall health," said Colleen Reitan, chair of the council's board of directors. "With that good news comes rising costs which purchasers see reflected in their premiums."

Investment earnings on state-mandated health plan reserves offset operating losses. State law requires nonprofit HMO plans to have 1 to 3 months of financial reserves. Minnesota's plans averaged reserves of 1.65 months in 1999, compared to 1.53 in 1998.

Continued growth in taxes and mandated benefits impact market

Minnesota health care consumers, through the health plans, paid more than $47.1 million in state health care-related taxes and assessments in 1999, up 10.1 percent from 1998. The percentage of premiums that goes to pay state health care taxes has increased 676 percent since 1987. Premium taxes are levied only on fully insured health plan products. Primarily small employers and individuals purchase these products

Federal law exempts self-insured organizations (many large employers, public employees and large group purchasers) from paying state premium taxes. Enrollment in tax-exempt, self-insured plans increased by 9.86 percent in 1999 as more employers sought to avoid the added cost of some state taxes and mandated benefit requirements. Self-insured enrollment has grown by more than 51 percent since 1995.

The health plans are required by state statute to submit reports on their financial status. The reports are independently audited to comply with generally accepted accounting principles, standards of the Financial Accounting Standards Board, and definitions and standards promulgated by the National Association of Insurance Commissioners and the Minnesota Department of Health.

Established in 1985, the Minnesota Council of Health Plans is a trade association of 10 licensed nonprofit health plans. Council members have pioneered a style of health care that has improved quality and consumer satisfaction and expanded access to health care for all Minnesotans. The council and its members are leaders in health care reform, practice guidelines development, technology assessment and data collection and analysis.

EDITOR'S NOTE: Tables listing individual health plan data and industry-wide data are available by calling the Minnesota Council of Health Plans

FOR INFORMATION ABOUT INDIVIDUAL PLAN NUMBERS, CONTACT:

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