The nation’s health insurers are getting financially stronger, with 50 percent of HMOs and related companies rated A (excellent) or B (good) in a new analysis by Weiss Ratings Inc., an independent rating firm focused on banks, insurers, mutual funds and stocks.
Meanwhile, the number of HMOs with weak ratings has declined from nearly 40 percent in 1998 to only 16.8 percent as of last June 30, Weiss reported last week.
Among local health insurers, Blue Cross & Blue Shield of Rhode Island got the best rating from Weiss, an A-. UnitedHealthcare of New England got a B rating, according to senior analyst Donna O’Rourke. Neighborhood Health Plan of Rhode Island got a C-.
“We’ve seen a huge amount of companies leave the market, so as an industry, (health insurers) are looking better, because the stronger companies are surviving,” O’Rourke said. Insurers are making better profits, she said, and they’re building up their reserves.
Some companies are still struggling, however, and no one can take success for granted. “It’s a thin-margin business,” O’Rourke said. “They’re not making a lot of money on each dollar, and there’s so much uncertainty, consumer demand and regulatory and political changes.”
Consumers obviously have an interest in their health insurers’ financial stability because nobody wants to pay premiums to a company, then have it go broke and be unable to cover its claims. But strong companies are also better able to get through bad times, O’Rourke said, using investment income to offset operating losses and reduce the need for drastic rate hikes.
That said, what makes for strong finances can also make for higher premiums – as Gov. Donald L. Carcieri noted last year when he pressed Blue Cross to stop boosting its reserves. In August, the company volunteered to stop contributing to its reserves for a quarter, and freeze the reserves at their level at the time, $277 million, until next August.
On its own, Blue Cross has also reduced its annual rate increases for small-group subscribers by not asking them to contribute to reserves.
From an analyst’s perspective, the opposite is good: The higher the reserves, the stronger the company. “I’m looking at the financial stability of a company, so the more capital it has, the happier I’m going to be,”
O’Rourke said. And the Blues, especially, have a long history of being well-capitalized, she noted – it’s what got them through the late 1990s.
The Weiss analysis gives Blue Cross & Blue Shield of Massachusetts an A rating. More than a dozen other Blues also got ratings of B+ or higher.
A chart provided by Weiss shows as of June 30, Blue Cross & Blue Shield of Rhode Island had $546.7 million in assets, up 19.4 percent from 2003, and $273.1 million in capital, up 19.7 percent from 2003. Net income for the year was listed as $13.6 million, up 4.3 percent from 2003.
The Weiss Safety Ratings are based on an analysis of a company’s risk-adjusted capital, five-year historical profitability, quality of investments, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.
Based in Florida, Weiss reviews more than 8,000 stocks daily, issues investment ratings on more than 12,000 mutual funds, and provides financial safety ratings on more than 15,000 financial institutions, including banks and insurance companies. It is the only major rating agency that receives no direct or indirect compensation from the companies it rates.
The full HMO report is available at www.weissratings.com.
