HMO Enrollment Drops In Metropolitan Areas:

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InterStudy Releases Latest Findings in its Updated
Regional Market Analysis

ST. PAUL, Minn. (12/10/01) -- Metropolitan areas lost more than 926,000 HMO enrollees during 2000, according to the latest edition of InterStudy Publications?s Regional Market Analysis. HMO enrollment in Metropolitan Statistical Areas (MSAs) fell by 1.3% between January 1, 2000 and January 1, 2001.

The annual decrease in metropolitan area?s HMO enrollment reflects the overall HMO enrollment decrease during this time. Between January 1, 2000 and January 1, 2001, total enrollment in the HMO industry decreased by approximately 897,000 enrollees, or 1.1%. In a switch from previous periods, HMO enrollment loss was heavier in metropolitan areas than non-metropolitan areas during 2000.

These findings are reported in the recently released Regional Market Analysis 11.2, which is Part III of InterStudy Publications? Competitive Edge series and joins companion reports HMO Directory 11.2 and HMO Industry Report 11.2.
The Regional Market Analysis 11.2 looks at the 326 Metropolitan Statistical Areas (MSAs) across the United States with active HMOs as of January 1, 2001. For each MSA, the report provides detailed information on HMO enrollment and market penetration as of January 1, 2001. The report also includes separate subdirectories of HMO revenue and expense data, as well as benchmarks of HMO activity that can be used to compare MSAs nationwide. Data presented in the Regional Market Analysis 11.2 is derived from the January 1, 2001 InterStudy National HMO Census.

Following are highlights on metropolitan HMO enrollment, penetration, competition and finance trends from the Regional Market Analysis 11.2.

MSAs Lose HMO Enrollment: As of July 1, 2001, 72.3 million HMO enrollees were in metropolitan areas, compared to 73.3 million as of January 1, 2000. MSAs lost more than 926,000 HMO enrollees, or 1.3% of their HMO enrollment during this time. However, metropolitan HMO enrollment may begin to stabilize if HMO enrollment overall continues to do so. During the second half of 2000, total HMO enrollment in all areas experienced a small increase of 0.3%, according to InterStudy?s HMO Industry Report 11.2.

More than half of the 326 MSAs with HMO enrollment as of January 1, 2001 experienced a decrease in HMO enrollment during the preceding year. Between January 1, 2000 and January 1, 2001, 165 MSAs (50.6%) had enrollment declines, totalling 3.5 million lost members. Conversely, 153 MSAs experienced an increase in HMO enrollment during this time, adding approximately 2.5 million members overall. These gains and losses resulted in a net loss of more than 900,000 HMO enrollees across all metropolitan areas.

HMO Enrollment Continues to be Concentrated in Large Markets: Almost three-quarters (74.2%) of the 72.3 million HMO members in metropolitan areas are in large markets with populations of
1 million or more. Another 20.2% are in medium-sized markets with populations between 250,000 and 999,999. The remaining 5.6% of HMO members are in small markets with populations less than 250,000.

The total HMO enrollment of an MSA ranges from 1 enrollee in Victoria, Texas, to more than 5.4 million in Los Angeles-Long Beach, California.
Average HMO Penetration Rate Continues to Drop: The HMO penetration rate for all metropolitan markets fell by 1.7% from January 1, 2000 to January 1, 2001, reflecting the annual decrease in total HMO enrollment of 1.1% for the same period. HMO penetration in metropolitan markets was 33.8% as of January 1, 2000, dropping slightly to 32.1% as of January 1, 2001. This continues a trend observed between January 1, 1999 and January 1, 2000, when the HMO penetration rate for all metro markets decreased by 0.4%.

Large, medium and small markets all experienced a decrease in HMO penetration between January 1, 2000 and January 1, 2001. Medium-sized markets experienced the largest decrease during this time, with HMO penetration falling from 28.0% as of January 1, 2000 to 25.3% as of January 1, 2001. Small markets witnessed the smallest decrease in HMO penetration, which dropped only 0.3% from 18.6% to 18.3%.

As of January 1, 2001, there were 23 MSAs with penetration rates of at least 50.0%. These MSAs served a combined enrollment of 18.6 million members, or 25.7% of all HMO enrollment in a metro area. There were 148 MSAs with penetration rates of 25.0% or more, accounting for 61.5 million enrollees, or 85.0% of all HMO enrollment in an MSA.

There were 78 MSAs with penetration rates below 10.0% as of January 1, 2001. These 78 MSAs accounted for 730,520 HMO enrollees, or only 1.0% of all HMO enrollment in an MSA. Of the 78 MSAs with penetration rates below 10.0%, 11 had penetration rates below 1.0%, all located within Alabama, Georgia, Mississippi and Texas.

Three MSAs Gained More Than 100,000 HMO Enrollees: The three MSAs listed on the following page--Los Angeles-Long Beach, California; Newark, New Jersey; and Tucson, Arizona--each gained more than 100,000 HMO enrollees between January 1, 2000 and January 1, 2001. These three MSAs were responsible for almost one-quarter (24.2%) of all HMO enrollment growth within an MSA during that time.
Los Angeles-Long Beach and Newark are large markets with 1 million or more people, and Tucson is a medium-sized market with a population between 250,000 and 999,999. All three MSAs are highly competitive markets with Indexes of Competition (IOC) ranging from 0.737 (Tucson) to 0.862 (Los Angeles-Long Beach). These IOCs are significantly higher than the national average IOC of 0.580 as of January 1, 2001.

Of the three fastest-growing MSAs, Tucson showed the most marked increase in HMO penetration. Tucson?s penetration rate increased from 28.1% as of January 1, 2000 to 44.1% as of January 1, 2001.

South Atlantic, East North Central and West South Central Regions Have More MSAs Losing Enrollment: The largest number of MSAs with enrollment losses (32) came from the South Atlantic states of Delaware, the District of Columbia, Georgia, Florida, Maryland, North Carolina, South Carolina, Virginia and West Virginia. The East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin) and West South Central (Arkansas, Louisiana, Oklahoma and Texas) regions followed with 26 and 25 MSAs, respectively, losing HMO members.
Almost 60% (97) of the 165 MSAs losing enrollment between January 1, 2000 and January 1, 2001 lost fewer than 10,000 enrollees. Six MSAs lost more than 100,000 members during that time. These six MSAs are Boston, Massachusetts-New Hampshire; Baltimore, Maryland; Miami, Florida; St. Louis, Missouri-Illinois; Philadelphia, Pennsylvania-New Jersey; and Chicago, Illinois.

InterStudy collected financial data presented in the Regional Market Analysis 11.2 from a combination of the January 1, 2001 InterStudy National HMO Census and state Departments of Insurance.

HMO Profitability in Metro Areas Improves: HMO profitability in metropolitan areas improved between year-end 1999 and year-end 2000. As of year-end 1999, HMOs averaged a -1.3% operating profit margin across all metro areas. A year later, as of year-end 2000, HMOs averaged a higher operating profit margin of -0.3%.

Both small and medium-sized markets improved their average operating profit margins by 1.3% between year-end 1999 and year-end 2000. As of year-end 1999, small markets averaged a -1.8% operating profit margin, and medium markets averaged -1.3%.
Average HMO profitability held steady in large metropolitan areas, which experienced an average operating profit margin of -0.2% for both year-end 1999 and year-end 2000.

California, New Jersey and New York dominated the list of top ten most profitable large markets as of year-end 2000. Among all MSAs of any size, Jackson, Mississippi, a medium-sized market, was the most profitable as of year-end 2000, with an average HMO operating profit margin of 6.7%.
Premiums for Traditional Single Coverage Increase in Metro Areas: Average HMO premiums for traditional single coverage increased in small, medium and large MSAs between year-end 1999 and year-end 2000. As shown in the following chart, large MSAs experienced the largest increase in average HMO premiums for traditional single coverage, rising from $167 to $189 during this time.

Average Traditional HMO Single Premium by Market Size
Year-End 1995 to Year-End 2000

Average HMO Per-Member, Per-Month Medicare Premium Revenue Exceeds PMPM Medicaid and Commercial Premium Revenue: On average, HMO per-member, per-month (PMPM) Medicare premium revenue was higher than PMPM Medicaid or PMPM commercial premium revenue as of year-end 2000. This held true for small, medium and large markets. Large markets had an average HMO PMPM Medicare premium revenue of $493 as of year-end 2000. This compares to large markets? average HMO PMPM commercial premium revenue of $156 and average HMO PMPM Medicaid premium revenue of $147. Large markets had an average HMO PMPM total revenue--including premiums, investment and other income sources--of $182 as of year-end 2000.

Metropolitan Areas? HMO Administrative Expense Ratios Range from 5.3% to 34.2%: Administrative expense ratios, calculated by dividing total administrative expenses by premium revenue, range from a low of 5.3% in Wheeling, West Virginia-Ohio, to a high of 34.2% in San Angelo, Texas, as of year-end 2000. Among large markets, Columbus, Ohio, has the highest administrative expense ratio of 17.7%.

Biloxi-Gulfport-Pascagoula, Mississippi, has the highest administrative expense ratio of 19.6% among medium-sized markets, and San Angelo, Texas, reports the highest administrative expense ratio of 34.2% among small markets.

Metropolitan Areas? HMO Medical Expense Ratios Range from 74.3% to 114.4%: Medical expense ratios, calculated by dividing total medical expenses by premium revenue, range from a low of 74.3% in Longview-Marshall, Texas, to a high of 114.4% in San Angelo, Texas, as of year-end 2000. The MSA with the highest administrative expense ratio--San Angelo, Texas--reported the lowest medical expense ratio of any MSA.

Per-Member, Per-Month Expenses Vary Little by Market Size: Per-member, per-month (PMPM) expenses did not vary substantially by market size as of year-end 2000, as shown in the chart on the following page. For example, average PMPM expenditures for inpatient care were $45 for small markets, $47 for medium markets, and $46 for large markets. Data for year-ends 1997, 1998 and 1999 also showed little variability in PMPM expenses by market size.

The InterStudy Competitive Edge series is published semi-annually by InterStudy Publications, a publications firm specializing in research and reports for market driven health care. Part I, the HMO Directory 11.2, was published in September. Part II, the HMO Industry Report 11.2, was published in October. The complete InterStudy Competitive Edge series (Parts I, II and III) is available for $610 (prepaid). Each book is also sold separately. The HMO Directory and HMO Industry Report are available for $245 each (prepaid) and the Regional Market Analysis is available for $275 (prepaid). If you have any questions or would like to place an order, please call 1-800-844-3351, or visit our web site at www.interstudypublications.com.