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Health insurers report 2014 losses

The parent companies of BlueCross BlueShield of Western New York and Univera Healthcare reported operating losses for 2014 as the first year of the federal Affordable Care Act’s health insurance marketplaces brought shrinking revenues, declining enrollment and a higher tax burden for the companies.

HealthNow New York reported an operating loss of $69.4 million – and a net loss of $52.3 million, after investments and taxes are factored in – on $2.44 billion in operating revenues last year, according to its annual state regulatory filing.

That’s a significant slide from the $6.5 million operating loss – and $31.7 million in net income – that the Buffalo-based parent of BlueCross BlueShield had in 2013.

At the same time, Excellus BlueCross BlueShield of Rochester reported an operating loss of $55.3 million – and net income of $24.2 million – on revenue of $5.94 billion for 2014.

The Univera parent company reported an operating loss of $72.9 million in 2013, when it had net income of $52.6 million, according to its own financial statements filed with the state Department of Financial Services.

Officials with the two companies said the rise in employers choosing to self-insure, lagging payments from the federal and state governments for Medicare and Medicaid members, taxes imposed as part of the Affordable Care Act, and higher per-member medical and hospital costs contributed to the operating losses.

“Clearly we had some challenges for 2014, and 2015 won’t be an easy year for our industry, either, or for us as a company,” Stephen T. Swift, HealthNow’s executive vice president and chief financial officer, said in an interview Tuesday.

HealthNow officials said they had braced themselves for a weaker financial performance in 2014 for several reasons.

For one, the Affordable Care Act brought $55 million in new taxes that boosted the company’s general administrative expenses from $197.1 million in 2013 to $245.7 million in 2014, Swift said.

Further, the rising cost of prescription drugs took a toll on HealthNow’s bottom line. One new drug for hepatitis C, Gilead Sciences’ Sovaldi, costs $85,000 for an eight-week course of treatment.

HealthNow spent $15 million in 2014 on the drug, which wasn’t on the market in 2013.

And payments from the federal government to reimburse the cost of medical, hospital and pharmacy care delivered to Medicare members, and payments from the federal and state governments to reimburse the cost of care provided to Medicaid members, did not keep up with rising expenses in those categories, he said.

For example, HealthNow paid out $740.3 million in medical costs for Medicare members but received only $731.3 million in reimbursements for that care; for Medicaid, premiums of $219.3 million slightly outpaced medical costs of $213.3 million.

Last July, HealthNow announced its intention to exit the Medicaid managed care program, citing steep financial losses, before putting those plans on hold in October.

Swift said the insurer remains in negotiations with another, unnamed entity to administer the program through a strategic partnership. HealthNow stopped accepting new Medicaid members but continues to serve existing members.

Overall, HealthNow’s premium payments fell from $2.48 billion to $2.46 billion as its enrollment fell from 457,869 to 428,856, in part because more employer clients switched to self-insurance, Swift said.

To try to turn around its finances, Swift said the insurer is looking to shift its network of hospital and physician providers from a fee-for-service model to one that pays based on outcome; is seeking further use of home health care, where appropriate; and is advocating for increased payments from state and federal governments.

For Excellus, premium payments fell to $5.94 billion, from $6.29 billion, as enrollment fell to 1.6 million, from 1.8 million, across its upstate territory, with 135,000 members in the Western New York region covered by Univera.

The insurer blamed the enrollment drop on two changes: It stopped offering Medicaid-related products in 14 counties, primarily in Central New York, where it lost 150,000 members as a result; and it lost 150,000 state-employee members who now are self-insured.

A new ACA tax of $137 million drove a sharp rise in general administrative expenses for Excellus, from $472.5 million in 2013 to $570.2 million in 2014. But stronger-than-expected investment income of $115.2 million last year helped the insurer report a net income of $24.2 million.

The financial filings also disclosed payments to current and former executives for 2014.

HealthNow paid $3.8 million to former CEO Alphonso O’Neil-White, who had received $6.4 million in compensation, including a retirement payout, in 2013.

The insurer also paid $3.5 million last year to Cheryl A. Howe, the former executive vice president of operations, and $1.3 million to Thomas A. Fentner, its former senior vice president for human resources and administrative services.

The highest-paid current employee was Swift, who earned $1.2 million in salary and compensation tied to the company’s performance in 2013. CEO David W. Anderson was paid $1.1 million under the same formula.

At Excellus, CEO Christopher C. Booth earned $1.8 million, and Dorothy A. Coleman, the chief financial officer, was paid $852,255.

The highest-ranking employee at Univera’s Amherst campus, President Arthur G. Wingerter, was paid $438,996.

Independent Health of Amherst, the region’s other major insurer, will file its statement at the end of the month.

email: swatson@buffnews.com