Highmark Health’s operating losses hit $565 million in 2015

April 01--Highmark Health's operating losses exceeded a half billion dollars in 2015 largely due to massive losses in its Affordable Care Act marketplace plans, Highmark officials said Friday.

"Those losses are unsustainable for anyone," said Highmark Health President and CEO David Holmberg in a conference call.

The $565 million operating loss last year compares with a $178 million loss in 2014 for Highmark Health, the parent company for Pittsburgh insurer Highmark Inc. and its eight-hospital health system, Allegheny Health Network.

Overall, Highmark Health ended the year $85 million in the red, nearly the same as 2014. But that number includes Highmark recording $249 million in net assets from its acquisition of Blue Cross of Northeast Pennsylvania and $294 million in investment income.

Highmark's diversified businesses for vision, dental and stop-loss coverage were profitable to the tune of $229 million, while health plan and hospital-based sectors had a combined $474 million operating loss.

"I don't see this as big trouble, but they're surviving on the investment income," said Stephen Foreman, an associate professor of health care administration at Robert Morris University. "And it's not every year you're going to get a Blue Cross of Northeast Pennsylvania acquisition."

Mr. Holmberg acknowledged Highmark and other insurers misjudged the degree to which new marketplace enrollees would seek services. As a result, he said Highmark was paying out $1.20 worth of care for every $1 it received in premiums, resulting in a $590 million loss on ACA plans alone.

In addition, he said, the federal government has offered only a fraction of an expected $500 million in aid meant as a financial safety net for marketplace plans.

Mr. Holmberg said despite the losses, Highmark overall is achieving "strong, consistent year-over-year financial performance," pointing to a near $1 billion increase in operating revenue over 2014 and noting Standard & Poor's recent affirmation of Highmark Inc.'s A- financial strength rating.

It also has $6.3 billion in cash and investments, and $5.2 billion in net assets. Highmark spent $500 million on capital investments in 2015, according to company records.

In light of its ACA losses, Highmark has redesigned plans, raised some premiums and cut back on marketplace enrollment. Mr. Holmberg said the insurer remains committed to providing access to health care through the marketplace but said other insurers need to do their part by offering more plans.

Highmark's health insurance plans across all markets saw a 95 percent retention rate, the company reported, with the lower-cost, narrow network Community Blue plan growing 70 percent.

On the provider side, it said Allegheny Health Network saw a 3.5 percent increase in inpatient volume and 1.8 percent increase in outpatient registration.

AHN operating revenue remained essentially flat from 2014 with a $36 million loss which, according to a Highmark release, "includes significant cost increases associated with capital investments being made in the system."

Steve Twedt: stwedt@post-gazette.com or 412-263-1963.

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