Highmark Inc.'s battle with UPMC isn't having a significant impact on the health insurer's financial performance.
But Highmark expects that to change as it cuts prices to keep customers from switching to other insurers who can provide them with in-network access to UPMC and its network of 20 hospitals and more than 3,400 doctors.
“Thus far, there hasn't been a major impact on our business,” Highmark spokesman Aaron Billger said on Wednesday as the state's biggest health insurer released its financial results for 2013.
“Right now, we are facing competitive pricing,” he said. “We expect it will have some impact on our results next year.”
UPMC, the region's largest hospital system and No. 2 health insurer, is putting pressure on Highmark by refusing to renew a contract that gives Highmark's insurance subscribers access to the system's hospitals and doctors. The contract will expire at the end of this year.
UPMC Health Plan and three national health plans that have full in-network access to UPMC — Aetna Inc., Cigna Corp. and United Healthcare — are trying to persuade Highmark members to switch.
As of the end of 2013, Highmark said it had 3.2 million members in Western Pennsylvania, unchanged from 12 months earlier. Total revenue was $14.9 billion, down slightly from $15 billion in 2012 because of the loss of a contract to provide vision services to federal employees.
Standard & Poor's Ratings Services cited premium cuts in a downgrade of Highmark's financial strength and credit ratings to “A-” from “A” last month. S&P analyst Jon Reichert said on Wednesday that Highmark's financial report was “pretty much in line with what we were expecting.”
While the UPMC fight may not have had a major impact at Downtown-based Highmark last year, the nonprofit Blue Cross Blue Shield company did report lower earnings. Net income for 2013 was $294.1 million, down 32 percent from $432.2 million in 2012.
The 2012 profit included a one-time gain of $185.8 million related to Highmark's acquisition of Blue Cross of Delaware, Billger said. Without the gain, Highmark's income before affiliations was $372.1 million last year, down 2 percent from $380.8 million the year before. And operating income, which does not count investment gains, was $116.5 million last year, up from $78.6 million in 2012.
“Our anticipation is that the company will produce a lower level of earnings” in 2014 and 2015 because of the loss of its UPMC contract, Reichert said.
Billger attributed the boost in operating profit to lower expenses and lower utilization of services.
“Fundamentally, we're not incurring major claims right now,” he said.
The insurer boosted its reserves for claims to $4.4 billion at the end of 2013, up from $4.1 billion a year earlier.
“They've had consistently good earnings for several years,” said Sally Rosen, an analyst with A.M. Best Co., which affirmed its “A-” rating of Highmark last week. “The revenues were down slightly, but there hasn't been a lot of growth overall in the industry in the commercial sector.”
The results don't include Highmark's system of seven hospitals and various doctor practices, Allegheny Health Network, which the insurer acquired last year. Highmark expects to release full results that include the network in May or June, Billger said.
Also not included is any impact from the Affordable Care Act. Highmark sold individual health plans in Pennsylvania, Delaware and West Virginia on HealthCare.gov between October and the beginning of this month, though the bulk of the business occurred this year.
Highmark has reported signing up a total of 181,144 people both on and off the exchanges as of March 31. But it also expects to lose $2.9 million on its Obamacare business after being reimbursed by the federal government for an undisclosed portion of its losses.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.
