Health insurers report more losses in 2014

Area health insurers reported another year of losses in 2014, driven largely by what they say were i
Schenectady-based MVP Healthcare reported another year of losses in 2014.
Schenectady-based MVP Healthcare reported another year of losses in 2014.

Area health insurers reported another year of losses in 2014, driven largely by what they say were inadequate rate increases set by the state and a reduction in federal reimbursement for Medicare plans.

MVP Health Care lost $12.4 million last year on revenues of $2.9 billion, a slight improvement over 2013, when the Schenectady-based insurer lost $13.6 million on revenues of $2.5 billion.

CDPHP lost $37.2 million last year on revenues of $2.2 billion, a slight improvement over the previous year, when the Albany-based insurer lost $43.9 million on revenues of $2 billion.

While both companies saw increased membership and were able to cut administrative overhead in 2014, the state’s decision to slash proposed rate increases hit their bottom line hard, they said.

Insurers across the state last year requested an average 12.5 percent increase in rates for the individual market and 13.9 percent increase for the small group market. The state Department of Financial Services, however, approved much smaller hikes of 5.7 percent and 6.7 percent, respectively, in September.

MVP President and CEO Denise Gonick accused state regulators of going too far and urged them to reconsider, saying insurers would be forced to drop certain coverage. That same month, MVP announced it would discontinue some of its Medicare Advantage products to nearly 20,000 members.

The small group plans were hit particularly hard, said Karla Austen, MVP’s executive vice president and chief financial officer. MVP had requested average rate increases of 13.62 percent for its small group health plans and 14.54 percent for its small group dental plans, but the state approved average increases of only 11.76 and 12.66 percent, respectively.

“We are hoping that, going forward, [the state] looks at all of the losses that quite frankly all of the insurers are sustaining in the small group market in upstate New York,” Austen said Wednesday. “We, like every other carrier in upstate New York, had rate increases that contributed to our losses in 2014.”

Despite the loss, MVP outperformed earlier projections in the second half of 2014 because of savings realized through the integration of Hudson Health Plan operations. MVP acquired the Tarrytown-based Medicaid managed care organization in 2013, along with its 125,000 Medicaid and Child Health Plus members.

“MVP ended the year in a very strong position, growing membership, reducing expenses and investing in a multiyear transformation of our business to better serve our members,” said Christopher Del Vecchio, MVP’s executive vice president of strategy and innovation.

MVP, which has more than 700,000 members across the Northeast, is predicting a modest profit in 2015.

Federal cuts to Medicare reimbursement also drove losses in 2014, insurers said. In addition, insurers have been paying out larger reimbursements to providers who have consolidated operations, said Bob Hinckley, chief strategy officer at CDPHP.

“Hospitals acquiring other hospitals, hospitals acquiring physicians practices; the larger these organizations become, the more leverage they have in contract negotiations and the more they usually ask for,” he said. “We have not yet found a case where a provider consolidation leads to lower costs, and that’s going on a great deal in the Capital District and the surrounding areas.”

CDPHP also cited the skyrocketing costs of specialty drugs in driving losses. Hinckley pointed to the ongoing controversy over the high cost of Hepatitis C drug Solvadi as one outrageous example; one course of treatment with the drug costs about $80,000, he said.

The insurer’s longtime relationship with New York Oncology Hematology almost came to an end this year over contract disputes related to the markup on injectable drugs, whose costs have skyrocketed over the years from a couple hundred dollars a dose to as high as $30,000 or $40,000 a dose.

“There are a number of drugs in the specialty pharmaceutical area that have just appeared over the last year or so,” he said, “and there are more in the pipeline that are costing tens of thousands of dollars and are just driving health care costs to the point of almost breaking because the system can’t handle these really steep costs for the drugs.”

For insurers, the higher the costs, the more risk they assume, and the faster costs change, the harder it is to adequately price them, he said.

While MVP began 2014 with some 100 layoffs of administrative employees — the latest in a series of layoffs at MVP in recent years — CDPHP found other ways to cut administrative costs in 2014 by renegotiating contracts with vendors and cutting spending. Those savings should carry over to 2015 and 2016, Hinckley said.

“We have not done any layoffs,” he said. “We do look very carefully at refilling positions, but we do not have a no-fill policy, so to speak.”

CDPHP membership was 453,154 at the end of 2014, up 5,635 from the year before.

“While the 2014 loss was significant, CDPHP had better-than-anticipated results and reduced losses during the year,” said CDPHP President and CEO John Bennett in a news release. “We have a positive outlook for 2015 and 2016 and look forward to appropriate rates from the state and continued partnership with our providers.”

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