HMO'S EXPENSES DETAILED : ADMINISTRATIVE COSTS VARY FROM 3% TO 25%.
California HMOs allocated as much as a quarter of their revenues to pay for administrative costs that include multimillion-dollar executive compensation packages and advertising expenses, according to a report released Friday by the California Medical Association.
In a survey of 35 HMOs, the report by the San Francisco-based doctors group said that administrative costs ranged from a high around 25 percent of revenues to a low around 3 percent among health plans with at least 20,000 enrollees.
Kaiser Foundation Health Plan spent the smallest percentage on administrative costs while Community Health Plan allocated the largest.
That bites into the percentage spent on medical treatment.
Medical spending ran the gamut from a low of 74.3 percent of revenues at CaliforniaCare, the HMO of Woodland Hills-based Wellpoint Health Networks, to a high of 96.5 percent at Oakland-based Kaiser.
``When consumers and businesses are choosing their health plan and they see plans with high overhead or administrative costs, they should ask why,'' said Dr. Jack Lewin, chief executive of the medical association.
``They should find out if they are getting full value for their premiums,'' he said
The top 10 in spending the largest portion on medical care were Kaiser, Monarch Plan, Priority Health Services, Contra Costa Health Plan, Santa Barbara Regional Health Initiative, National Health Plan, Health Plan of San Mateo, Health Plan of the Redwoods, Solano Partnership Health Plan and Inter Valley Health Plan. Seven are nonprofit HMOs.
The bottom 10 were CaliforniaCare, Community Health Plan, Community Health Group, Foundation Health, MetLife, Molina Medical Centers, Maxicare, Lifeguard, Health Net and Aetna. Seven of them are for-profit firms.
The report said that Health Net, the HMO of Woodland Hills-based Health Systems International, last year paid almost $2 million to its president, Malik Hasan. Wellpoint's CEO, Leonard Schaeffer, received salary and other compensation of $1.2 million in the company's last fiscal year.
For-profit companies spend less on medical care on the average than their nonprofit counterparts - 83 percent vs. 86 percent.
Administrative costs also were lower at nonprofits, at 12 percent of revenue on the average, compared with 14 percent at for-profits.
But Alan Tomiyama, spokesman for the California Association of HMOs in San Francisco, took issue with the report's validity.
He said there is no direct correlation between how much one spends on medical care and the quality of care. Furthermore, the report compares ``apples to oranges'' since it does not take into account individual differences among the plans, he said.
``It overlooks a significant number of important factors like the size of the plan, plan type and composition of benefit packages,'' Tomiyama said.
A new survey shows the percentage of revenue spent on medical care by the 10 largest health maintenance organizations in California.
HMOs Percent spent
on medical care
Health Net 80.1
FHP Inc. 83.8
Foundation Health 77.4
Blue Shield HMO 82.4
SOURCE: California Medical Association
Box: HMO SPENDING (See Text)