Health insurers post higher earnings
Investments gain and cost of care moderates
Globe Staff / August 16, 2011
The biggest commercial health insurers in Massachusetts yesterday posted sharply higher second-quarter earnings, citing their efforts to rein in administrative spending and a slower rise in medical costs reflected in the contracts they’ve negotiated with hospitals and doctors.
Blue Cross Blue Shield of Massachusetts, the state’s largest health insurance company, recorded net income of $56.5 million for the three months ending June 30, a reversal from the $14.3 million loss Blue Cross reported for the corresponding period last year.
Quarterly net income climbed to $13.5 million at Harvard Pilgrim Health Care, the second-largest health plan, from $6.5 million a year earlier.
Tufts Health Plan, meanwhile, registered second-quarter net income of $35.9 million, an increase from $11.5 million a year ago. And Fallon Community Health Plan reported income of $13.6 million, compared with a $12.8 million loss during the same quarter in 2010.
Investment income represented a large chunk of health insurers’ gains in the April-to-June period, which preceded the past month’s turbulence in financial markets.
Income from the sale of stocks, Treasury bonds, and other assets accounted for $30.2 million of the earnings of Boston-based Blue Cross in the second quarter. Tufts, based in Watertown, posted quarterly investment income of $11 million, while Wellesley-based Harvard Pilgrim recorded investment income of $6.3 million. Fallon, based in Worcester, reported $5.2 million in investment income during the three-month period.
But operating income also improved for the insurers, as moderating price increases for medical care translated into reduced insurance payments – and less onerous premium hikes for businesses and individuals. That trend should continue into the second half of the year based on figures reported last week by the state Division of Insurance.
Insurance regulators approved average base rate increases of 5.9 percent for Blue Cross and Tufts, 3 percent for Harvard Pilgrim, 5.9 percent for its health maintenance organization, 5.3 percent for Fallon, and 5.4 percent for its HMO. The average base rates were on policies renewing in the fourth quarter for small businesses and individuals.
The average base rate increases don’t include additional factors, such as the type of business and age of the workforce, that apply to many insurance customers. Over the past several years, the average base rate increases often exceeded 10 percent.
“We’re expecting the cost trend, which has moderated, to continue at the level it’s at,’’ said Allen P. Maltz, executive vice president and chief financial officer of Blue Cross. “Rate increases have come down for customers, and we’re hoping they’ll stay in this range.’’
Affordability has become an important goal for health insurers and providers, with state government and business officials complaining that the cost of medical care has crippled their ability to create jobs. The health plans have sought to make their reimbursements more predictable by launching so-called global payment plans that give doctors and hospitals annual budgets to care for patients rather than reimbursing them for every visit and procedure.
Blue Cross’s global payment plan, called the “alternative quality contract,’’ now accounts for roughly a quarter of its overall business, Maltz said. Other health insurers have initiated similar plans while also moving toward limited or tiered network policies that reward customers with lower premiums in return for restricting the pool of providers they use.
Insurers have been trying to steer patients toward lower-cost health care without hurting the quality of care. Another factor working in their favor has been a decline in health care spending, as many cost-conscious patients postpone doctor visits or delay elective procedures such as knee replacements.
“Unfortunately, the economic news of the last week is likely to prolong this trend,’’ said James W. DuCharme, chief financial officer for Harvard Pilgrim. “We don’t believe this will continue forever. Eventually, the use of medical care that has been delayed will reemerge.’’
One major challenge for the health plans will be negotiating new contracts with hospitals and physicians that build on a continued moderation of price increases. The providers are also facing reimbursement cuts from their public payers for Medicare and Medicaid, the government health insurance programs for senior citizens and low-income residents.
Blue Cross, for instance, said it is currently negotiating new contracts with about a third of its provider network. That includes Partners Healthcare System Inc., the Boston-based parent of Massachusetts General and Brigham and Women’s hospitals, which has agreed to reopen early contracts that don’t expire until 2012. If the talks are successful, it would effectively lower health care prices already agreed to next year at Partners hospitals.
“Partners is always an important negotiation for us,’’ Maltz said.
Robert Weisman can be reached at weisman@globe.com.
© Copyright 2011 Globe Newspaper Company.
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