Russian novelist Leo Tolstoy famously wrote that all happy families are alike; each unhappy family is unhappy in its own way. The same principle seems to apply to Oregon insurance companies. There are no “happy” Oregon-based health insurers right now – all the major companies in the state have reported financial losses for the first half of this year. But the unhappy insurance companies based here, which reported combined losses of $105.97 million during the first six months of 2015, are unhappy each in their own way.
Prompted by questions posed by broker David Sloves, CEO of Nonstop Wellness, The Lund Report is digging into the stories behind the losses.
Sloves, who has studied the balance sheets of publicly traded national insurance companies, which do not have a significant presence in Oregon, said that many industry giants seem to be taking profits and excess cash to over-stuff their emergency reserves, resulting in a financial loss on paper even though they’re bringing in more money than it costs them to do business.
“What we see is that they’ve kept adding this money to their balance sheets for future losses, and it doesn’t really bear any relevance, but it counts against their loss ratio, and it’s tax deductible for those that are subject to taxes,” he said, and he urged The Lund Report to look into the stories behind the losses.
That deeper examination shows that while Oregon’s insurers may all have financial losses in common, the reasons for those losses vary. Some are failing to stay profitable as they lose members. Others are spending to attract new members, and dipping into the red as a result. Some have been hard-hit by a political vote that cut funds they had been counting on – including one insurer that says it is closing as a result. One insurer has required capital infusions from its parent company. And a nonprofit known for its focus on effectiveness and efficiency is reporting net losses because its medical costs are climbing too quickly. Every insurance company is reporting losses, but the story is different at each.
Kaiser Permanente: Rising medical costs underpin financial losses
Kaiser Permanente Health Plans of the Northwest collected $1.58 billion in premiums in the first six months of 2015 and spent $1.55 billion on hospital and medical care during that period. In other words, the state’s largest issuer of comprehensive health insurance plans charged $34.7 million more in premiums than it spent on healthcare, yet after other expenses Kaiser reported a net loss of $13.2 million in the first half of the year. Kaiser has been on a financial losing streak since the start of 2013, reporting cumulative net losses of $43.7 million over the past two and a half years.
What’s responsible for those losses?
Not underwriting. First-half 2015 claims adjustment expenses, which the National Association of Insurance Commissioners defines as “costs expected to be incurred in connection with the adjustment and recording of accident and health, auto medical and workers' compensation claims,” were $3.5 million
higher than the same costs a year earlier. But general administrative expenses were down $1.1 million. These underwriting costs are not enough to account for the losses and razor-fine profits Kaiser has reported
Instead, Kaiser, which offers a relatively unique insurance model in Oregon, seems to be struggling to keep down its own costs. Most insurance companies compensate medical providers, clinics and hospitals for costs, rather than employing professionals and owning healthcare facilities themselves. Kaiser keeps it all in-house, and has aimed to use evidence to reduce costs and improve the quality of care its patient-members receive.
Yet in the first six months of 2015, hospital and medical expenses were $111.6 million higher than in the same period a year earlier – a 7.8 percent hike – even though member rolls climbed by just 1 percent, to 472,711, during that time. Recruiting new members and raising rates helped Kaiser boost its premium revenue by 6 percent, not enough to make up for rising medical costs.
While some insurance companies have played hardball with doctors and clinics to negotiate lower rates, Kaiser seems to be less able to keep its in-house medical spending down. Yet Kaiser’s balance sheet shows that this nonprofit is well positioned to weather losses. As of June 30, it had $26.8 million in cash on hand, and $264.7 million in capital and surplus.
Moda Health: Rapid growth, rising costs, and a blow from CMS
Oregon’s second-largest provider of comprehensive health-insurance plans reported a net loss of $33.8 million in the first half of 2016, but in this case the loss seems to reflect Moda’s meteoric growth – growth that has created a number of headaches for the company. At the end of 2011, Moda – then known as ODS Health – had 63,734 people enrolled in its plans. By June 30 of this year, it had 221,176.
It achieved that rise with a splashy name change, by buying the naming rights to the Portland Trailblazers basketball arena, and by offering some of the lowest monthly premiums available when the Affordable Care Act’s individual marketplace health insurance sales got underway in Oregon.
From June 30, 2014, to June 30, 2015, Moda added 22,212 new members, an 11.2 percent increase. Over the same period, its medical costs climbed. Moda spent $545.2 million on medical costs in the first half of this year, a 59.2 percent increase over the same period in 2014. Premiums climbed 16 percent, to $387.3 million, but that was not enough to cover medical expenses, let alone underwriting costs.
Moda’s operations cost the company $89.4 million in net cash in the first half of this year. Its balance sheet has suffered more than any other in the state so far in 2015. And it appears to be getting twice burned because of the financial losses its competitors are also seeing.
As The Lund Report earlier reported, Moda bet heavily on an Affordable Care Act fund that was supposed to spread risk among insurers, and instead is costing many millions. The so-called “risk corridor” fund was designed to take money from profitable insurers that accepted large numbers of new clients through exchanges, in order to subsidize those insurers that reported financial losses after accepting new members. That fund now has just 12.6 percent of what the Centers for Medicare & Medicaid Services
forecast. CMS has said it will not be able to pay Moda $70.3 million of the $89.5 million the company had expected to receive through the risk corridor program.
That, in turn, has prompted ratings agency A.M. Best to put Moda's parent company's credit up for review. Oregon Dental Service currently has a B++ (Good) rating, but that could change depending on what A.M. Best determines.
Moda reported total capital and surplus and surplus of $83.8 million as of June 30. The loss of $70.3 million in additional capital is a punishing one. Moda had no cash on hand at the time of its last filing submitted to regulators; instead it reported a negative cash balance of $45.9 million.
Regence BlueCross BlueShield: With medical spending in check, other costs climb
Regence BCBS has been successful at holding down its medical spending, but seems to have struggled to be as effective as keeping other costs at bay. Hospital medical costs in the first half of this year climbed by just 1.5 percent, to $802 million, compared to the first six months of 2014. But claims adjustment expenses climbed 4.8 percent, to $69.8 million, and general administrative expenses climbed 4.4 percent, to $87.7 million. Combined these health and underwriting costs were $19 million higher in the first half of this year than in the first half of 2014.
The nonprofit ranks No. 3 among providers of comprehensive health insurance plans in Oregon, with 165,324 members enrolled in these plans, behind Moda’s 217,181 members and Kaiser’s 374,573. But Regence BCBS also covers hundreds of thousands of other people through dental, vision, federal, Medicare and other health plans. Including these forms of coverage. The company had 496,281 people enrolled in its various plans as of June 30, up 5.6 percent from a year earlier.
Despite gaining 26,261 members over the course of a year, the insurer collected less in premiums in the first half of 2015 than in the first half of 2014: $936.2 million this year, $937.5 million last year. Little wonder that the company is in the red, with a first-half 2015 net loss of $4.3 million.
But it’s well positioned to handle the pressure. As of June 30, Regence BCBS had $44.7 million in cash on hand, and $627.7 million in capital and surplus, putting it financially on more stable footing than any of its larger peers.
Providence Health Plan: Rising expenses, both medical and administrative
Providence, whose parent company owns hospitals and which offers some Kaiser-like in-network health plans, faces a similar challenge to Kaiser as well: healthcare related costs are rising too fast – though Providence has at least seen membership climb apace with medical spending.
Providence Health Plan’s spending on hospital and medical costs in the first half of 2015 was $554.6 million, a full $65.8 million than during the first six months of last year, representing a 13.5 percent climb. That spending increase nearly mirrors the membership growth Providence reports: it had 212,405 members as of June 30, up 13.8 percent in a year.
Premium revenue has not kept pace with medical spending, climbing 8.2 percent to $593.1 million. And while Providence spent $8.7 million less on claims adjustment expenses in the first half of this year than
the first half of last year, a 25.4 percent reduction, it also spent $16. 3 million more on general administrative expenses, a 71.9 percent increase.
Added up, the Catholic nonprofit reported a net loss $12.4 million in first half of this year. As of June 30, Providence Health Plan had $65 million in cash on hand, and $518.2 million in capital and surplus.
PacificSource Health Plans: Cutting costs as members leave
PacificSource had 157,012 members enrolled in its plans as of June 30 – an 11.3 percent drop from a year earlier. Every other major Oregon insurer enrolled more people over that period. And it seems as though the loss of 19,966 members likely contributed to the company’s $6.3 million first-half of 2015 net loss. With fewer members, premiums dropped at the insurance company, to $282.6 million in the first half of this year, down by 11.3 percent or $35.9 million.
PacificSource did what it could to restrain spending. Its hospital and medical costs were $246.2 million, $27.9 million less in the first half of this year than the first six months of 2014. Claims adjustment expenses were $11 million, down $1.05 million. General administrative expenses were $40.8 million, down $3.1 million.
The cuts weren’t enough to make up for lower revenue. But with $25.7 million in cash on hand and $153.7 million in capital as of June 30, PacificSource is well positioned to rebound if it can stabilize enrollment in its plans.
LifeWise Health Plan of Oregon Inc.: More members, more spending, revenue does not keep up.
LifeWise is a small insurance company that has seen large membership growth this year. But with premiums climbing more slowly than membership rolls, the company has been spending more than it has taken in.
The company had 73,415 members on June 30, up 55.5 percent from a year earlier. Its premiums only climbed 44.2 percent to $114.2 million, however, from the first six months of last year to the first half of 2015. Premiums fell just shy of covering hospital and medical costs, leaving nothing left for what regulators call “underwriting.”
And those healthcare related costs climbed fast – rising 77.4 percent, to $114.8 million. Claims adjustment expenses climbed 36.9 percent to $8.9 million. General administrative expenses rose 21.6 percent to $18.3 million.
As of June 30, LifeWise had $6.7 million in cash on hand, and $22.4 million in capital and surplus.
Health Net Health Plan of Oregon: Withstanding losses with help from a parent company
Health Net Inc. is a network of health plans that cover 6.1 million people across the country, including 79,735 people through an Oregon subsidiary. Health Net Health Plan of Oregon mostly covers people
through comprehensive health insurance plans, but a sizeable minority of members are enrolled in its Medicare programs.
Health Net Inc. is also on planning to align with Centene Corp., a Fortune 500 company based in St. Louis, Mo., which is purchasing the health plan. Oregon Insurance Commissioner Laura Cali is expected to announce public hearings on this transaction.
Health Net of Oregon’s premiums for the first half of 2015, at $206.6 million, were just more than enough to cover $198.4 million in hospital and medical costs that accumulated during that time. But with another $8.99 million in claims adjustment expenses and $27.8 million in general administrative expenses, it’s little surprise that the company completed the first six months of 2015 with a $7.03 million net loss.
From January through June of this year, Health Net of Oregon drew down its reserves by $12.7 million. The company has also received three multi-million dollar capital contributions from its parent company in the past year and a half. Health Net Inc. has contributed $39 million in capital t its Oregon subsidiary since June 2014.
Health Net of Oregon’s member rolls grew to 79,735 as of June 30, a 13.2 percent increase from a year earlier. The company had $12.9 million in cash on hand and $54.5 million in capital and surplus.
Health Republic: Hard-hit and shutting down
Like Moda Health, Health Republic was hit hard when the Centers for Medicare & Medicaid announced that participants in a program that was supposed to spread risk among insurers is instead returning just 12.6 percent of what was originally expected. But while Moda has staggered under the loss, for Health Republic the blow proved fatal.
Health Republic is taking a $20 million hit from the “risk corridor” loss. A tiny startup still establishing itself financially, it told The Lund Report it will no longer offer health plans in 2016, and that it is beginning to wind down its business. It is one of eight co-op health plans that are closing this year.
As of June 30 of this year, Health Republic had $12.9 million in cash on hand, and $19 million in capital and surplus. It reported a net loss of $5.8 million for the first six months of 2015. The company’s leaders decided it could not survive the risk corridor hit.
Oregon’s Health CO-OP: Revenue, membership, costs all rising fast
Like Health Republic, Oregon’s Health CO-OP is a health-insurance co-op created under the Affordable Care Act. But Oregon’s Health CO-OP may have more longevity – though it remains a tiny company with a long way to grow before its future is guaranteed.
Oregon’s Health CO-OP had just 13,303 members on June 30, up from 1,055 enrolled on the same date a year earlier.
With that rapid growth has come a fast rise in both revenue and costs. Premiums climbed from $1.4 million in the first half of 2014 to $25.2 million the first six months of this year. Hospital and medical costs climbed from $2.3 million to $23.5 million. Claims adjustment expenses went from $62,224 to $2.3 million. General administrative expenses from $2.5 million to $5.4 million.
Oregon’s Health CO-OP also added $909,000 to its reserves during the first six months of the year. If reported a net loss of $4.9 million for the first half of 2015. As of June 30, the company had $1.4 million in cash on hand and $9 million in capital and surplus.
-- Courtney Sherwood can be reached at [email protected]. Follow her on Twitter at @csherwood.
