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Major Massachusetts health insurers all reported higher net income for 2011 than for 2010. The Boston Globe makes the profit numbers sound big, calling them “sharply higher” and reporting that executives collected more pay. And indeed, the profits seem large on an absolute basis: $38.5M for Fallon, $87.6M for Tufts, $93.5M for Harvard Pilgrim and $136.1M for Blue Cross. But actually the dollars are quite small when considered in context.

The $136.1M Blue Cross figure equates to less than $50 per member per year (they have 2.8M members), which is equivalent to about 2 primary care co-pays or about 1 day of what my business pays for a family premium.

CEO compensation is quite restrained as well. The Blue Cross and Fallon CEOs are in the $800,000 range, or about what a moderately successful orthopedist makes. At $1.2M, Harvard Pilgrim’s CEO is getting close to the income of a typical fertility specialist, and at $1.7M the Tufts CEO is at the level of a law firm partner. They are far from the highest paid people in Massachusetts and frankly I don’t see how they could be expected to make less.

With that said, I’m definitely unhappy with the fact that premiums have risen relentlessly. We’ve experienced annual double digit health insurance premium increases since opening our consulting firm 10 years ago. None of our other major expenses have grown at that pace.

Health plans aren’t the biggest cause of cost increases. Pressures come from providers (hospitals and physicians), suppliers (pharma and device), employers (who fail to embrace better managed care) patients (through increased demand) and government (through reimbursement policies and regulations). But for too long health plans were overly complacent about overall costs. Plans are becoming more aggressive about cost control now as they react to demands from customers, regulators and the public. Massachusetts plans have been creative about rolling out new benefit designs and payment plans that preserve quality and control cost.

It’s worth monitoring health plan profits and executive compensation, but if anything the profit motive for these not-for-profit organizations is too low. Incentives for more radical, impactful change lie in the for-profit sector. Case in point is private equity backed Steward Health, a profit-seeking entity with a big appetite to control costs and generate profits well in excess of what the health plans are pulling in.

High profits are not the enemy of health care cost containment in Massachusetts.

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4 Responses for “Profits Are Up at Massachusetts Health Plans – Should You Be Upset???”

  1. Nate Ogden says:

    Went to the Boston Globe to read the original article; what a terrible piece of journalism. This article is in the business section which would imply the person writing it has at least a basic understanding of business and financial reporting. This article fails all the way around. You can’t compare profit over years without addressing revenue, acquisitions, sales, market share and on and on. If BCBS double their enrollment to 2.8 million from 1.4 million and their profit only went up 10% that would be a major problem.

    ““We’re trying to maintain the affordability agenda,’’ said Allen P. Maltz, chief financial officer of Blue Cross, who cited the Boston-based insurer’s 2011 operating margin – the percentage of money it makes from its revenue – of 0.7 percent.”

    A decent article would start here, 2011 operating margin of .7% compared to 2010 operating margin of?

    Profit per member would also be a great measure. If it was $50 in 2011 how does that compare to 2010? If you look back at the 2010 report thay actually loss 100 million on operations, they were only positive because of investment income. This is a huge deal with insurance. If the insurance company has underwriting losses, i.e. 100%+ loss ratio premiums are going to go up and go up a lot. If your looking for stable insurance rates your carrier living off investment income is not a good start.

    Compare the Boston Globe story to one written by a real journalist that understands at least the basics;

    http://www.bizjournals.com/boston/news/2012/03/01/health-insurers-finances-improve-on.html

    Blue Cross Blue Shield of Massachusetts revealed a big reversal of fortune in 2011. The state’s largest insurer reported operating income of $42.7 million in 2011, versus an operating loss of $100.7 million during 2010. Blue Cross booked net income of $136.1 million for the year, up from $13.4 million in 2010.

    42 million in income on their revenue is not impressive at all, which undermines the entire point the Boston Globe was trying to make.

    Didn’t see this key fact in the Boston Globe article either;

    “At the same time, the company has reduced its 2011 administrative spending (which makes up 10 cents of each premium dollar) to the lowest level since 2008.”

    PPACA requires MLR of .8 to .85. If BCBS of MA is running .9 maybe we should be questioning if .8 is to low?

    We wasted over a decade demonizing insurance companies instead of focusing on the real problems. Even today instead of tackling provider payments and government over regulation the Boston Globe is still going after insurance companies.

    The numbers we should be looking at are the provider incomes;

    “Boston-based health system Partners HealthCare posted a net gain of $128 million in the first quarter of fiscal year 2012, a 24 percent drop from $168 million posted in the same period last year, according to a health system news release.”

    This would sound like a positive until you read on and see operations have not reduced revenue;

    “Income from operations in the first quarter of FY 2012, which ran from October to December, totaled $72 million for a 3.3 percent operating margin.”

    3.3% operating margin compared to .7% operating margin.

    Even after the AG busted them for the inflated contracts their revenue is still increasing. At 3.3% operations are doing great. If we want to reduce premiums we need to see contraction in provider operations and substantial reducitons in revenue.

    With the rash of generics comming out we should see reductions in Pharma revenue, if we see it flat or low single digits that is not going to be a good thing. We need to see 20% cut and then continuing declines.

  2. DeterminedMD says:

    What do you expect as a reader and attentive to who has alliances with which party? The Boston Globe is going to write something that downplays the impact of Romneycare when Obama and Co are banking on Obamacare to replicate if not be an improved version? It’s like expecting the WSJ to write a fluff piece on the House of Congress working on increasing the deficit. They are all hacks and plants, period.

    If this was such a great idea by Romney and Obama, why are premiums still increasing yearly by double digits? Hmm, again, the specifics after the bills are passed are not to be examined, eh?

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