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Boston Capital

Insurers in the middle

By Steven Syre
Globe Columnist / May 18, 2010

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Big Massachusetts health insurers have been howling for months about their run-in with state regulators and the fallout from limiting premium rates.

So what is the actual financial impact of the decision by the state Division of Insurance to reject premium increases for individuals and small businesses, leaving 2009 rates in place for now? The logical places to look for a hint are the quarterly financial reports posted by insurers yesterday.

Those numbers are dramatic and confusing. Blue Cross Blue Shield of Massachusetts said its operating loss ballooned to $95 million from $49 million the first quarter a year ago. Tufts Health Plan reported an operating loss surging to $59 million from $16.5 million during the same period last year. Harvard Pilgrim Health Care’s operating loss jumped fourfold to $28.6 million. The operating loss at Fallon Community Health Plan climbed to $10.8 million from $1.3 million.

A couple of things make those numbers confusing. First, health insurers usually earn investment income on their surplus funds, gains that dampen the impact of operating losses. After accounting for investment income, the net losses at each of the four big Massachusetts insurers were smaller than operating red ink would suggest.

More important, insurers used different accounting methods to measure the current and future impact of the rate dispute.

One example: The $59 million operating loss reported by Tufts included a $40 million provision that represents the impact of the rate dispute on its business through the balance of the year. The actual hit in the first three months of this year was not so severe.

So the numbers paint a confusing picture, but they do make a few important things crystal clear. The state’s big health insurers were in the red a year ago, and they’re still losing money now.

Insurers are convenient villains in the story about soaring health care costs and state regulators certainly put the responsibility for most small business and individual rate increases on them without doing anything about the actual expense of health care.

The consistent, serious losses at insurers should be persuasive evidence the problem is more complicated than the fix suggests.

“The numbers are serious for all the plans,’’ says Jim Roosevelt, president of Tufts Health Plan. “In a very traditional accounting sense, they indicate what happens when you deal with the revenue of a regulated industry and ignore the committed and contracted costs.

“This really should be a story about underlying costs for hospitals, doctors, and prescription drugs and how we make decisions as a Commonwealth and a society on what is the right amount to pay for those. When you do what has happened here and just limit premiums, you produce these kinds of numbers,’’ he says.

None of this is happening in a vacuum. State health officials recently reported on the financial strength of insurance companies and how it had grown, by some important measures, over the past decade. A similar report on financial reserves at the state’s hospitals came out yesterday.

Meanwhile, a new health care bill backed by Senate president Therese Murray is expected to reach the Senate floor this morning. That proposal contains some things insurers like, such as a high-risk reinsurance pool and open enrollment restrictions for individuals. They consider it a big improvement.

Insurers are the health care middlemen people love to hate. Many would like to eliminate them entirely. But chronic insurance losses are evidence of a bigger problem we haven’t come close to solving.

The Red Herring
Jeff Vinik update: The quarterly financial disclosure report filed by Vinik Asset Management always comes with surprises. Vinik, the former Fidelity Magellan manager who launched his own hedge fund long ago, reported investments of $6.6 billion as of March 31. Vinik’s top stock: Green Mountain Coffee Roasters Inc. The Waterbury, Vt., company was followed by Intel Corp. and gold investments in an exchange traded fund in the Vinik Asset Management portfolio.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.