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Profits Are Up at Massachusetts Health Plans – Should You Be Upset???

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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DeterminedMD
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DeterminedMD

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… Read more »

Nate Ogden
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Nate Ogden

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,… Read more »