Highmark Health reports $171M operating loss for 1st half of year
Providing medical care for people who bought health insurance on the Affordable Care Act's online marketplace costs much more than Highmark Health anticipated, driving an operating loss of $171 million for the company in the first half of 2015.
Sicker-than-expected members cost $318 million more than the company collected through June 30, officials announced Thursday. The loss dwarfed gains the company made in areas such as health plans for employers and seniors and its vision and dental business.
“I truly do believe that our results reflect that we're a diversified enterprise operating in a very challenging marketplace,” Highmark CEO David Holmberg said in a conference call with reporters. “There's a lot of work to do, but we're very confident in our strategy, and we'll continue to make the investments that are necessary to serve the community for the long term.”
Highmark's purchase of North Side-based Allegheny Health Network touched off a bitter fight with health care giant UPMC over reimbursement for in-network care of Highmark's members.
UPMC said it could not contract with a competitor in the hospital business.
UPMC's contract with Highmark expired at the end of last year, putting many of UPMC's doctors and hospitals out-of-network for Highmark members. Highmark Health is the parent company of insurer Highmark Inc. and Allegheny Health Network.
Offering some of the lowest premiums of any insurer in the country, Highmark added about 379,000 people who bought plans through the federal marketplace in Pennsylvania, Holmberg said. The insurer is seeking rate increases of 25 to 30 percent for many of the marketplace plans for 2016.
“It blows me away that they lost that much because of the Affordable Care Act,” said Stephen Foreman, an associate professor of health administration and economics at Robert Morris University. “Maybe they need to reassess how they're handling their Affordable Care Act business.”
James McTiernan, area vice president for national consulting firm Arthur J. Gallagher, said insurers had a difficult task predicting what kinds of patients would buy plans on the marketplace.
“It was a business that for any insurer was impossible to know what they were buying, what risk pool they were going to attract,” he said.
Overall, Highmark Health reported revenue exceeded expenses by $221 million. The company counted as income $229 million in assets it gained in a merger with Blue Cross of Northeastern Pennsylvania. Highmark Health has $6.6 billion in cash and investments and net assets of $5.6 billion.
Contributing to the losses in Highmark's federal marketplace business were chemotherapy claims that ran 50 percent higher than for people who bought plans off the exchange, Holmberg said. Inpatient charges were 60 percent higher for the on-exchange enrollees, and they had higher rates of congestive heart failure and hepatitis.
However, the nonprofit expects the federal government to reimburse some of the losses through a program meant to help protect insurers selling marketplace plans. The insurer said the government is still calculating how much it might reimburse. The insurer has 5.3 million members.
Highmark said Allegheny Health Network, an eight-hospital system it purchased in 2013, reported a $16 million operating loss for the first half of the year. At the same time last year, Highmark had reported a loss of $12 million for the hospital network.
Plans to turn around Allegheny Health Network are proceeding slower than expected, said Karen Hanlon, Highmark's executive vice president and chief financial officer.
Part of Highmark's long-term strategy is to invest in outpatient clinics and to expand areas of Allegheny's business that are thriving, officials said. They also plan to overhaul marketplace plans.
Eventually the market will settle, McTiernan said.
“You fix it through a combination of pricing, plan design and marketing,” he said.