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Mass. insurers link steep losses to health care overhaul

Swamped with a total of nearly $133 million in first-time taxes and fees assessed by the Obama administration to finance the federal health care overhaul, the state’s three largest health insurers Thursday posted steep losses for the three months ending March 31.

Insurance companies, like drug and medical device makers, were required to help fund the Affordable Care Act through annual taxes that must be booked in the first quarter for accounting purposes. But the insurers said they will try to recoup much of the added cost through the year by boosting premiums for employers and individuals buying insurance.

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“At a time we’re trying to contain costs, this is an added burden,” said Lora Pellegrini, president of the Massachusetts Association of Health Plans, a trade group that had joined the national health insurance industry in opposing the federal taxes. “We think of it as a sales tax on health care. This is going to be passed on in higher premiums.”

Federal assessments — including both taxes and fees meant to spread out insurance risks — totaled $76 million between January and March for Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer. Harvard Pilgrim Health Care booked $22.9 million in taxes, and Tufts Health Plan reported $34 million in taxes and fees.

The costs resulted in a $59.3 million quarterly loss at Blue Cross, which earned $28 million in the first quarter of last year. The loss at Harvard Pilgrim was $17.3 million, compared with income of $8.5 million a year ago. Tufts reported a deficit of $34 million, after a gain of $5.7 million last year.

Blue Cross Blue Shield chief financial officer Allen Maltz said the new taxes raise the possibility that it could show an operating loss for the entire year, particularly if the Boston-based insurer isn’t able to recover the full amount through premium hikes. But even if it can’t do that, he added, the deficit could be offset by gains from the insurer’s investments in stocks, bonds, and real estate, resulting in a profit.

“There’s no shortage of taxes and fees,” Maltz said of the new federal health care assessments. “This is certainly something we will consider in setting our premiums. In terms of what we can put in our premiums, that will depend on the competitive marketplace.”

The state Division of Insurance, which regulates premium rates in the insurance market for small businesses and individuals, could limit how much of the added costs health plans can pass on to customers.

In recent years, Patrick administration officials have privately urged insurers to cap premium increases at no more than 5 percent in that so-called small group market, implying they could act to block increases higher than that.

Premium rate increases for small employers and individuals renewing their policies in the third quarter are expected to be released by the insurance division within a week, giving the first hint of how the new federal taxes and fees are affecting rates.

Insurers that have prepared for the new taxes and fees, partly by streamlining their administrative operations, should be able to absorb them over time through higher premiums, said Umesh Kurpad, chief financial officer at Watertown-based Tufts.

“These things only become a financial concern if you can’t recover the cost of the tax,” Kurpad said. “We are absolutely prepared to handle it. We’ve had to take the full hit in the first quarter. But if we tried to price for it all in the first quarter, we wouldn’t have any customers.”

The taxes and fees tied to implementation of the Affordable Care Act were assessed for the first time in the most recent quarter. They will increase in each of the next four years before leveling off in 2018. Nationally, the cost to insurers has been estimated at $8 billion this year.

Massachusetts health insurers, including national companies operating here and smaller Medicaid-managed care plans, are expected to pay a total of about $213 million to cover the new tax this year.

Some that are operating under a different accounting system — such as Worcester-based Fallon Health, which is expected to be assessed between $10 million and $11 million for 2014 — won’t have to book the expenses until later in the year.

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.
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