Managed Care Industry Had ‘Healthy’ Profits in 2002, Partly Because of Increased Premiums

Profits for many large managed care companies increased an average of 47% in the third quarter of 2002, largely driven by double-digit premium increases that rose higher than the rate of medical inflation for the third consecutive year, USA Today reports. According to Roberta Goodman, an analyst for Merrill Lynch, third-quarter earnings for 11 major insurers rose approximately 47%, and fourth-quarter earnings are also expected to be strong; Cigna was an exception, reporting a $6.27 per share loss. Managed care insurers' median third-quarter operating margin rose to 5.3% from less than 4% in the 1990s, and net profit margins increased from 2.2% in 2001 to 2.6% in the first nine months of 2002. The profitability trend is expected to continue in 2003, when premiums are expected to rise an average of 15.4% and health costs to rise 12%, allowing insurers to "add the difference to the bottom line." Costly new drugs, efforts by pharmaceutical companies to block lower-priced generic drugs from entering the market and an increase in hospital charges are the reason behind higher premium costs, according to USA Today (Appleby, USA Today, 1/2).