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UPMC expects insurance inequity

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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

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