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Health insurers’ earnings plunge for 2d quarter

Firms cite effort to keep premiums low

Massachusetts health insurers, ­under sustained pressure from small business customers and the Patrick administration to hold down premium increases, Wednesday posted sharply lower earnings for the second quarter compared with the same period a year ago.

Net income in the three months ending June 30 plunged 49.9 percent at the state’s largest health insurance company, Blue Cross Blue Shield of Massachusetts. The drop was even steeper for the state’s other major health plans — 56.3 percent at Harvard Pilgrim Health Care, 93.6 percent at Tufts Health Plan, and 68.4 percent at Fallon Community Health Plan.

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It marked the second consecutive quarter that health insurers felt a financial squeeze after racking up higher earnings in 2011. For the first three months of 2012 — a period of the year when insurance carriers typically see increased claims because patients delay medical procedures until after the holidays — Blue Cross Blue Shield and Tufts reported operating losses.

Insurers attributed the quarterly earnings declines primarily to their ­efforts to keep premiums low for employers and individuals. They also cited a more competitive market, with companies vying to attract customers by rolling out lower-cost products that restrict which medical providers members can see or require them to pay more at certain hospitals.

“We shouldn’t be surprised,” said Barbara Anthony, state undersecretary of consumer affairs and business regulation. “There’s been a lot of changes in the health care landscape. There’s more competition in the market, and consumers are the beneficiaries.”

As health insurance companies prepare to comply with a new state law requiring them to invest more money in information technology and report additional data on costs and quality in their contracts with doctors and hospitals, some question whether insurers will be able to operate profitably.

“It’s a serious concern,” said Josh Archambault, director of health care policy for the Pioneer Institute in Boston, a public policy research group, who warned of layoffs at health plans if their businesses deteriorate. “We’re in a situation where state and federal governments are dictating to the insurers what the market should be. If this trend continues and health care utilization rises, whether they’ll be able to make money is up for grabs.”

But consumer advocate Deirdre Cummings, legislative director for the nonprofit Massachusetts Public Interest Research Group, said that while premium increases have been moderating, businesses and individuals still haven’t felt sufficient relief after enduring a decade of soaring premiums.

“We all talk about wanting to bring down the cost of health care,” Cummings said. “What that means is that all the industries that are supported by health care are going to make less money. If we want to control health care costs, we have to control it from somewhere. The insurance companies will do just fine. Their profits just won’t be as obscene as in the past.”

One insurance executive insisted the lower second-quarter net income wasn’t that significant given the size of the industry’s customer base and the large volume of claims handled.

“We’re going to end the year at about the same place as last year,” said Allen Maltz, chief financial officer at Blue Cross Blue Shield. “You can’t make too much of a given quarter.”

Maltz said executives continue to monitor the trend in health care spending. But he said they have not yet started receiving more claims because of pent-up demand for elective procedures that were postponed during the economic downturn when employees lost jobs and health insurance. “We’re keeping our eyes open, but we’re not seeing an uptick in the [spending] trend,” he said.

For the second quarter, Boston-based Blue Cross Blue Shield reported net income of $28.3 million, down from $56.5 million in the corresponding quarter last year. Harvard Pilgrim, based in Wellesley, posted second-quarter income of $5.9 million, down from $13.5 million.

Tufts Health Plan, based in Watertown, reported net income of $2.3 million in the April-to-June period, down from $35.9 million a year earlier. Fallon, based in Worcester, recorded second-quarter income of $4.3 million, down from $13.6 million in the second quarter of 2011.

Small businesses and individuals whose annual health insurance policies renew on Oct. 1 will see average premium base rate increases of 2.1 percent in Massachusetts, increases that are more modest than the 5.5 percent average boost in base rates they absorbed a year ago, according to figures released last Friday by the Massachusetts Division of Insurance.

But the new rate increases ticked up from the 0.7 percent average increases on policies that renewed July 1. The base rates apply to thousands of customers in the so-called small group market of employers and self-employed individuals. Many of those customers — who are mostly employers — will have to pay more than the average increase, however, because of additional factors such as their location, type of business, industry sector, and workforce age.

Robert Weisman can be reached at weisman@globe.com.

Correction: An earlier version of this story incorrectly identified Allen Maltz as the chief executive of Blue Cross Blue Shield. He is the chief financial officer.

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