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Rising market lifts big 3 Mass. insurers

But Fallon continues to suffer net losses

By Robert Weisman
Globe Staff / March 2, 2011

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The three biggest health insurers in Massachusetts posted financial gains last year, fueled by strong investment income from the rising stock market, but a fourth health plan reported a small loss, according to documents filed yesterday with the Division of Insurance.

The results marked an improvement from 2009, when the slumping economy weighed on both insurers and their customers. But the insurance carriers had to grapple with new issues last year, such as a tougher line by regulators on premium increases. This year could bring more of the same, health insurance executives said.

“I anticipate that we will be living in an environment of scrutiny and close [insurance] rate oversight into the future,’’ said Jim Ducharme, chief financial officer at Harvard Pilgrim Health Care, based in Wellesley. “That is something that won’t be going away.’’

For the largest company, Blue Cross Blue Shield of Massachusetts, net income totaled $13.4 million as its investment gains of $111.4 million narrowly offset its $100.7 million operating loss. In 2009, the Boston-based insurer had a net loss of $149.2 million, including an operating loss of $114 million.

More than half of the Blue Cross operating deficit in 2010 was due to a $55 million charge it took to cover losses sustained when state regulators rejected its premium increases in the so-called small group market, said Allen P. Maltz, the company’s chief financial officer. That market includes individuals and small businesses.

About 2011, Maltz said: “I don’t expect premium rate caps to continue, but I do expect the state to push hard on us to accept rates that are modestly inadequate or just adequate. It’s going to continue to be a tough operating environment.’’

Harvard Pilgrim rang up net income of $49.6 million in 2010, compared with $20.8 million in 2009.

Among the state’s insurers, the top earner last year was Tufts Health Plan of Watertown, which had net income of $64.9 million, up from $29.5 million in 2009.

Harvard Pilgrim and Tufts, the state’s second- and third-largest health insur ance companies, signed a memorandum of understanding in January to explore a merger.

Fallon Community Health Plan, of Worcester, continuing to be hurt by the weak state economy, recorded an $8.8 million net loss for 2010. But that was an improvement on the $29 million loss it recorded in 2009.

Health insurers also reported their executive pay for 2010.

The highest-paid chief executive was James Roosevelt Jr. at Tufts, who received total compensation of nearly $1.2 million, down from $1.6 million in 2009.

Blue Cross’s chief executive, Andrew Dreyfus, who took over in September, earned a total of $799,899, most of it for his work in his previous position as executive vice president of health care services. In 2009, Dreyfus’s total pay was $698,766.

Eric H. Schultz, who became Harvard Pilgrim’s chief executive last March, collected total compensation of $795,017 last year. Schultz earned $787,033 in 2009, when he was Fallon’s chief executive.

Fallon’s current chief executive, W. Patrick Hughes, who took over in February of 2010, drew total pay of $649,581.

That was down from the $754,012 he received in 2009, when he was Fallon’s divisional president of health plan operations.

Robert Weisman can be reached at weisman@globe.com.