Revenue Growth Stays Strong for HMOs, Solid 2002 Expected Says CIBC World Markets Analyst; Earnings Outlook for HMOs Appears Solid for 2002.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 20, 2001

At a time when earnings momentum is slowing in other sectors of the economy, the outlook for health maintenance organizations remains strong, according to a report by John Szabo, healthcare services analyst for CIBC World Markets.

Szabo says that because health insurance premiums are directly related to age, the industry's average revenue per person increases "almost daily" as 76 million Baby Boomers get older. Additionally, though the unemployment rate is expected to increase in 2002, which will reduce health plan enrollment levels, large price increases of up to 15 percent far outweigh slowing enrollment growth. Ongoing industry consolidation is also driving pricing behavior, which, in turn should lead to improved margins in 2002.

The findings are included in Szabo's report on healthcare intermediaries, also known as health maintenance organizations or HMOs, entitled "Outlook 2002, an Industry in Transition."

Szabo says that the 76 million American's born between 1946 and 1964 are just beginning to hit their peak healthcare spending years. Healthcare intermediaries, which finance these expenditures, are well positioned to take advantage of this demographic trend.

"The industry is experiencing a positive mix shift as a growing percentage of enrollment falls into age brackets with progressively higher monthly premiums," Szabo writes in his report.

Americans spend more than $1 trillion annually or about 14 percent of the gross domestic product on healthcare, more than is spent on food, housing or transportation, Szabo reports. Of that $1 trillion, about $400 billion or around 4 percent of the gross domestic product, is used to purchase private health insurance.

The primary risks to the industry in the coming year are new legislation and litigation, according to the report. Szabo believes a federal patients bill of rights will likely be approved by Congress during the next two years, though its passage could benefit healthcare intermediary stock prices by removing a lingering uncertainty in the business.

Szabo has about nine years experience as an equity analyst following numerous industries. He has covered healthcare services at CIBC World Markets since 2000 and is a graduate of Bowling Green State University, with degrees in finance and international business. Szabo can be reached at 212-667-6660.

One of Wall Street's most respected firms, CIBC World Markets has a tradition of world-class equity research and is consistently top-ranked in The Wall Street Journal's All-Star Analysts Survey.

CIBC World Markets, the investment and merchant banking operation of CIBC, offers a full range of integrated credit and capital markets products, securities, and brokerage and asset management services to corporate, government and institutional clients. CIBC World Markets can be found on the World Wide Web at http://www.cibcwm.com.