Causes and Consequences of the HMO Underwriting Cycle

What are the potential policy impacts of the HMO underwriting cycle? Researchers at the University of Minnesota analyzed the HMO underwriting cycle. They 1) analyzed the determinants of the underwriting cycle for HMOs; 2) analyzed the effect of entry, competition, and state regulation on cycle severity; 3) determined to what degree state regulations exacerbate or mitigate the underwriting cycle; and 4) examined the effect of the cycle severity on HMO financial reserves, provider payments, and enrollment. The objective of this study was to better understand the HMO underwriting cycle in order to predict and estimate the potential policy impacts of the underwriting cycle, including decreased formation of managed care organizations, survival of the most affluent organizations, and the "lumpiness" of premium increases that make planning by providers and purchasers difficult.