Profits Under Pressure

Abstract

This study assesses the economic performance of investor-owned and private nonprofit health maintenance organizations by comparing their costs and revenues, controlling for other characteristics of the plans and the areas in which they are located. Data are drawn from a sample of 173 HMOs operating in 1983, one quarter under proprietary auspices. For-profit plans have average costs 10% higher than their nonprofit counterparts, primarily due to higher expenses for ambulatory care. Average revenues are also higher in investor-owned HMOs, although this difference is one third the size of the estimated difference in costs. The paper concludes with a discussion of the implications of these findings for both the future performance of the HMO industry and public policy affecting prepaid health care.