Firm Sees Managed Care Margins Expanding

Overall, however, managed care remains a low-margin business vulnerable to unexpected increases in medical costs, Corporate Research says.

Corporate Research sees continuing shrinkage at fully funded health maintenance organization and point-of-service plans. Enrollment will drop 3% this year, to 68 million, after declining 4.5% in 2002, the firm predicts.

Larry Akey, spokesman for the Health Insurance Association of America, Washington, says there is more to the story than the positive statistics from Corporate Research tell.

"There have been slight increases in the profitability of managed care companies over the last year, but that follows on the heels of negative profits over the late '90s where these companies were losing money," Akey says.

"Statistics are always interesting," Akey adds. "When you start from a low base, a 16% increase looks like a big bump until you realize the starting base is a 2.2% net profit margin. That's up substantially from negative profit margins in earlier years."