Maxicare Loses $60.9 Million in ’87 : Premiums to Rise an Average of 15% to Offset Heavy Costs

Citing the soaring cost of health care and the expense of digesting two large acquisitions, Maxicare Health Plans on Monday reported a loss of $60.9 million for 1987, compared to 1986 income of $4.3 million.

As a result, Maxicare officials said the company plans to raise premiums an average of 15% this year, sell some “non-essential assets” and cut administrative costs by $9 million.

“We had estimated a loss but not as large a loss as we had,” said Fred W. Wasserman, chairman and chief executive of Maxicare, the nation’s largest publicly traded health maintenance organization. The company, which is based in Los Angeles, contracts with doctors and hospitals to provide medical care for its clients, who are charged a monthly fee.

Revenue for 1987 jumped to $1.84 billion from $914.4 million in 1986. Much of the increase reflects the acquisition of HealthAmerica and HealthCare USA late in 1986.

For the fourth quarter, Maxicare posted a net loss of $32.6 million, compared to a net loss of $22.1 million in the same period of 1986. Revenue for the quarter was $460.9 million, up 27%.

Interest Costs Higher

Wasserman blamed the red ink on an “unexpected explosion” in health-care costs, which has led to losses of about $2 billion in the health insurance and HMO industry.

The cost of integrating its 1986 acquisitions also hurt Maxicare, he said. For example, the company spent $47.5 million on interest in 1987, compared to $16.7 million the year before.

Amortization expense increased to $16.8 million from $4.3 million, and depreciation expense rose to $20.6 million from $7.8 million.

The 1987 loss has put Maxicare in violation of certain loan covenants, and the company said it expects the existing loan agreement will be amended by March 31.

Maxicare’s loss from hospital operations narrowed in 1987 to $225,000 from $4.6 million in 1986. “On an operating basis, we broke even,” Wasserman said.

The planned 15% premium increase is “substantially higher than the last two to three years,” Wasserman said.

However, he contended, many insurers are hiking premiums 20% to 70%.

Although Maxicare is reducing personnel and other administrative expenses by $9 million this year, Wasserman said no new layoffs are planned.

Maxicare laid off between 500 and 600 employees last year and now employs about 7,000.