Highmark's profit surges 146 percent

| Friday, April 1, 2011

Highmark Inc. said Thursday that its profit grew by 146 percent last year as medical claims rose less than expected, investments earned more money and specialty businesses such as vision care grew.

Pennsylvania's largest nonprofit health insurance company "had a very good year in 2010," said Nanette DeTurk, executive vice president and chief financial officer.

The Downtown-based company reported a $462.5 million profit on revenue of $14.6 billion, compared with $187.7 million on revenue of $13.7 billion in 2009.

Across the industry, medical claims were up last year but remained below forecasts, possibly because people tend to go to doctors less often to save on co-payments and other costs during tough economic times, DeTurk said.

As a result of fewer claims and better controls on expenses, premiums for most Highmark members will rise less than 10 percent in 2011, compared to low double-digit hikes in recent years, she said. Highmark lost enrollment when some companies dropped coverage, but it ended the year with about 100,000 more members for a total of 4.8 million.

Standard & Poor's Rating Services listed Highmark with a negative credit outlook for most of last year, based on weaker earnings earlier, analyst James Sung said.

"But when we reviewed their first three quarters through September, we revised their rating from A-negative to A-stable" in December, Sung said. The full-year numbers "look pretty good."

Two years ago, Highmark and other insurers lost customers as companies trimmed benefits and cut staffs but still paid out more in benefits because workers nervous about losing their jobs rushed to schedule checkups and procedures, said Steve Zaharuk, a Moody's analyst who follows the company. At the end of 2009, the H1N1 flu scare raised costs.

Analysts anticipated more of the same last year. "But 2010 came, the flu went away, and people's behavior changed," Zaharuk said. Faced with higher deductibles and co-pays, members sought fewer medical services.

Highmark's after-tax profit was 3.2 percent of its operating revenue, up from 1.4 percent the year before. The company said it spends 88 cents of every dollar it takes in on medical care -- more than many for-profit insurers, and a key number as increased federal scrutiny on this subject increases.

Highmark is preparing for a more "retail-style health care market," DeTurk said. Six Highmark Direct stores sell insurance policies, and more will open this year, she said, without giving specifics.

Vision insurance, eyewear manufacturing and optical stores made a $70.5 million profit for Highmark last year, up 57 percent from 2009. Highmark operates 541 stores with various names in 40 states, including eight Vision Works stores in the Pittsburgh area. A wholesale business distributes eyeglass frames.

"They've been pretty successful in that business," Sung said, adding that with more government pressure to keep rates under control, many insurers are moving into niche businesses. Highmark's United Concordia dental subsidiary made a $56.7 million profit last year, up about 6 percent.

A "stop-loss," or reinsurance, business designed to limit exposure for companies that self-insure earned $37.8 million, up 57 percent.

Separately, the company said it plans to cooperate with a Justice Department investigation into whether Blue Cross Blue Shield plans suppressed competition in violation of antitrust laws, resulting in rising health care costs. Highmark Blue Cross Blue Shield West Virginia received requests for information. The investigation involves insurance plans in other states.

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