The parent companies of BlueCross BlueShield of Western New York and Univera Healthcare reported surpluses for 2016, the second positive year in a row for the health insurers.
But that surplus dropped markedly for Buffalo-based HealthNow New York Inc., the parent company of BlueCross BlueShield of Western New York. The insurer reported a $4.2 million surplus on $2.3 billion of premium income, compared to a $63.8 million surplus in 2015, according to financial filings with the New York state Department of Financial Services.
“We are in a very volatile business in which there will be year-over-year movements,” said Steve Swift, executive vice president and chief financial officer at HealthNow.
Officials at HealthNow noted that a year-to-year increase in revenue of $69 million was offset by increases of $38 million and $37 million respectively in hospital and prescription drug costs. It also reported underwriting losses of $24 million in 2016, a reversal from the gain of $28.9 million in 2015.
"Despite the uncertainty, our organization is well-capitalized and on solid financial footing," Swift said.
Rochester-based Excellus BlueCross BlueShield, the parent company of Univera Healthcare, posted a $99.5 million surplus on $5.9 billion in premium income. The insurer reported a $57.9 million surplus in 2015.
Membership in HealthNow's fully insured plans stood at 392,000. The company, which operates in the Buffalo and Albany regions, also has about 600,000 individuals in self-insured plans.
Univera's membership in Western New York was about 60,000. The parent company covers around 1.5 million individuals across the state in both fully insured and self-insured plans.
Swift and an official from Excellus voiced confidence over their companies' financial conditions and the need for caution by management, after seeing the major disruptions to patients, physicians and hospitals caused by the 2015 financial collapse of another big insurer in New York State, Health Republic.
Swift said all insurers face a continuing trend of rising medical costs. Prescription drug costs, especially high-cost specialty drugs for treating such complex conditions as cancer, remain a growing problem.
"We need more transparency in big pharma on their pricing strategy. It is now what the market can bear rather than what the right price point should be," he said.
Excellus noted a 10.8 percent increase in drug spending per member with prescription coverage between 2015 and 2016.
On the underwriting loss, Swift said the state did not approve rate increases for HealthNow's health plans that reflected cost increases in medical care. Underwriting income is the difference between premiums collected and any claims or other insurance-related expenses incurred.
"The approval process for those rates is not completely data-driven. There is also politics involved, and so the the rates don't reflect the cost increases we've experienced," he said.
At Excellus, officials also highlighted a $63 million reduction in administrative expenses and a net income margin of 1.7 percent, which aligns with the health plan’s goal of earning on average 1.5 percent annual net income. HealthNow reported a $12.3 million reduction in administrative expenses.
“It’s critical for our plan to achieve a margin so that our business can be financially healthy for the security of our members,” Christopher Booth, president and chief executive officer, said in a statement.
Excellus and HealthNow operate as not-for-profit organizations. Another important aspect of the filings included the company reserves – $1.2 billion for Excellus and $541 million for HealthNow.
The companies' financial filings with the state show 108 employees at Excellus earned more than $160,000 in salary, and 53 at HealthNow.
Total compensation for the top three executives at Excellus was: $2.09 million for Booth; $1.08 million for Chief Financial Officer Dorothy Coleman; and $854,609 for Stephen Sloan, chief administrative officer and general counsel. Total compensation for the top three executives at HealthNow was: $2.03 million for President and CEO David Anderson; $1.4 million for Swift; and $850,751 for David Busch, senior vice president and chief sales officer.
Total compensation consists of salary and incentives tied to performance, usually from the previous year. For instance, Anderson received a salary of $825,000 in 2016 and additional compensation of more than $1.2 million.
Health insurers are required to spend at least 82 percent to 85 percent of the premiums they collect on health care and quality improvement, thereby limiting expenses on administration, marketing, and surpluses or profits. This standard is known as a medical loss ratio. The filings indicate 2016 medical loss ratios of about 87 percent at both companies.