Nothing sickly about health insurers in '05

It was a bad year for hospitals, but a very healthy year indeed for health insurers. While hospitals in 2005 struggled with high overhead for labor and technology, health insurers took major steps forward, raising rates and cutting costs by using electronic records to replace daunting piles of

paperwork.Insurers rolled out a bevy of much-awaited plans, often with high-deductibles and health savings accounts. Insurers also debuted prescription benefit plans for Medicare recipients.While hospitals fought to eke out even slight increases in payments, health insurers didn't face the same problem.The increase in rates for health maintenance organization (HMOs) plans in 2005-2006 is estimated to be roughly 12.9 percent on top of the 13.3 percent for 2004-2005, according to research from Aon Consulting.Profits at HMOs jumped 10.7 percent in 2004 to $11.4 billion, following an 80 percent surge in 2003, according to Weiss Ratings' survey of 515 managed care organizations.And while rates and revenue grew, managed care providers announced mergers that will radically alter the health care landscape.The biggest ones to watch: * WellPoint, the nation's largest Blue Cross Blue Shield plan, made a deal to acquire WellChoice, which does business as Empire Blue Cross Blue Shield.* HIP Health Plan of New York, which already acquired Vytra, reached an agreement to merge with Group Health Inc.Those mergers would provide economies of scale, reducing costs and boosting bargaining power with hospitals in 2006. Even the HIP/ GHI merger, which creates a regional firm, would serve about 4 million members, enough to create a good-sized city. Our operations are highly complementary and our combined advantages will provide current and new members with an innovative level of access to the best health care possible, said Anthony L. Watson, HIP's chief executive officer and chairman.Not all smaller insurers are sure that what's good for HIP is good for consumers. Recent mergers in the industry have significantly reduced employer choice, insists James Fricchione, executive vice president of sales and marketing for Melville-based MDNY, a smaller insurer. To him more mergers mean further constraining choice.While Fricchione feels the mergers will hurt consumers, others disagreed. Frank Aiosa, a partner at the benefits advisory firm Chernoff Diamond, is one who believes the big Blue Cross merger involving WellPoint and WellChoice could very well be positive for our clients.Historically we have had three national choices for our clients with operations in multiple states - United, Aetna and CIGNA, Aiosa said. A WellPoint acquisition of WellChoice brings the largest insurer in the country into the New York market and creates a fourth national choice for our clients.But regardless of the impact on consumers, the mergers are likely to put further pressure on health care providers.Hospitals have diminished control over their revenue stream, because of deeply discounted negotiated managed care contracts, said Kevin Dahill, chief executive of the Nassau-Suffolk Hospital Council, a Hauppauge-based association of 23 hospitals on Long Island.