Highmark Health reported an operating loss of $171 million during the first six months of the year as losses soared for health plans sold in Affordable Care Act exchanges.
Pittsburgh-based Highmark Health lost $318 million on health plans sold to exchange consumers, which Highmark executives credited to demand for medical care that greatly exceeded expectations. Those who bought Highmark exchange plans likely had “no healthcare or intermittent healthcare” before the ACA expanded coverage in 2014, said David Holmberg, president and CEO of Highmark Health. Many are grappling with chronic illness, he said. Losses for health plans sold through the exchanges totaled $76 million during the first six months of 2014.
Demand for chemotherapy and inpatient care has been greater for those insured under exchange plans than the commercially insured, Holmberg said. Diseases such as congestive heart failure and hepatitis are more prevalent among the exchange members than other privately insured.
Roughly 379,000 people are covered under Highmark health plans sold in the exchanges. Highmark health plans cover 5.3 million people in Delaware, Pennsylvania and West Virginia.
High demand for medical care among exchange consumers has eroded profits at health insurers nationally, with one insurance company, Assurant, so badly burned by losses that it has chosen to exit health insurance. The losses will be offset to some degree by ACA provisions to buffer health plans from significant losses from large numbers of costly members.
Health plans are also seeking to readjust rates to alleviate the financial stress, though rate hikes can present their own problems. Rate increases are subject to review by regulators. Meanwhile, the exchanges are widely considered a price-sensitive market, mostly composed of consumers whose income is low enough to qualify for federal subsidies to help with the cost.
Highmark is in talks with regulators to raise rates an average of 25% to 30% in the coming year, said Karen Hanlon, executive vice president and chief financial officer at Highmark Health.
Hanlon said rates will be “very competitive” even after the increases.
The Pennsylvania exchange is one of many markets where Highmark and the competing UPMC health plan are battling fiercely for members. Highmark and UMPC have wrangled publicly and legally over a contract that expired last year. UPMC refused to renew the contract after Highmark acquired the West Penn Allegheny Health Network, a failing hospital system and rival to UMPC's own hospitals.
West Penn Allegheny, now the Allegheny Health Network, also reported a $16 million loss during the first half of the year. The operating loss for the Allegheny Health Network for the same period a year ago was $12 million.
The health system's turnaround will take longer than expected, with more investment to expand services in lower-cost community settings and develop certain specialties, such as cardiology and obstetrics and gynecology, Holmberg said.
Highmark Health's other business lines—vision, dental and stop-loss insurance— and investment income and gains from its acquisition of Blue Cross of Northeastern Pennsylvania helped boost the system's net income to $221 million for the six months compared with a $5 million loss the same period a year ago.