UPMC expects insurance inequity
By Alex Nixon
Published: Thursday, Nov. 7, 2013, 12:01 a.m.
Health care giant UPMC has signed up few people for the policies it is selling in the federal online marketplace because of glitches with the website.
But once the website is fixed and more people begin to enroll for so-called Obamacare coverage, UPMC Chief Financial Officer Robert DeMichiei predicts another challenge: Many of the customers who sign up in the first year will be the sickest and in most need of insurance.
The insurance giant and others participating in the exchanges need a balance of healthy young people to help offset the risk of potential claims it will have if the number skews toward the sickest. That is an added problem for insurers already facing a financial squeeze.
The health system, which gets roughly half its revenue from its hospitals and doctors, and the other half from its health insurance business, has seen its operating profit decline year-over-year for four successive quarters because of the push to lower health care costs.
“We're managing our way through the turbulent times,” DeMichiei said.
Health insurers may raise premiums in later years to make up for losses in the first year, said Stephen Foreman, a health economist and Robert Morris University associate professor. When only people with chronic illnesses buy health plans, the result is something economists such as Foreman call adverse selection.
“If you get a fair amount of adverse selection ... the insurer will lose money in the first year and then they'll raise premiums,” he said.
DeMichiei, who met with reporters Wednesday to discuss UPMC's financial results for the July-September quarter, wasn't specific about how many people have enrolled in plans through the government's website, only saying there has been very little activity.
Asked later to clarify, UPMC Health Plan CEO Diane Holder responded that there had been enrollments, “but we are not disclosing the numbers at this stage.”
UPMC Health Plan likely isn't the only insurer that's getting little activity. The website that's serving uninsured people in 36 states has only recently started allowing shoppers to create accounts and explore their plan options.
Obama administration officials testified before Congress this week that many of the problems were being ironed out and they expect 800,000 people to buy plans by the end of this month. An estimated 7 million people have been predicted to buy coverage by March 31, when this year's enrollment period ends.
DeMichiei said UPMC expects that once the website is working enrollments “should heat up,” but then it will likely be a “slow transition” in balancing out sick and costly customers who are the first to sign up with healthier people who may delay their decision to buy coverage.
UPMC reported declining operating profit in the first quarter of its fiscal year that ends June 30.
The health system posted $54.3 million in adjusted operating profit, down from $72.3 million in the same quarter last year. Profits at UPMC, as at many health systems in Western Pennsylvania, are being squeezed by reduced reimbursements and higher expenses.
UPMC is gaining patients and new insurance members, which led to a boost in revenue in the quarter of 15 percent to $2.8 billion.
Net income jumped 63 percent to $293.7 million, up from $180.2 million, on strong investment income and a $120 million one-time, non-cash gain associated with UPMC's July 1 acquisition of Altoona Regional Health System.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Google barge departs San Francisco to new home
- Bitcoin’s father said to be found
- ADT settles deception charges
- Obamacare enrollment has ‘lot of ground to cover’
- Silicon ‘Valley of haves, have-nots’
- Disney to lay off 700 from interactive unit
- Unemployment data lift spirits on Wall Street
- Beef costs reach record amid persisting drought
- Natural gas industry buoyed by advancing technology
- Stock, housing gains boost net worth
- Startup envisions ring that could rule them all