Four of the state’s largest nonprofit health insurers suffered operating losses in 2015, blaming the rising cost of prescription drugs and fees they were charged under the Affordable Care Act.
Blue Cross Blue Shield of Massachusetts, Fallon Health, Harvard Pilgrim Health Care, and Tufts Health Plan — which together insure nearly 7 million people in New England — released their 2015 financial results Tuesday.
Harvard Pilgrim was hit worst, saying it had an operating loss of nearly $79 million and a net loss after factoring in other income of almost $55 million. That’s a step backward from 2014, when Harvard Pilgrim lost $18 million on its insurance business and overall posted a net surplus.
Under the Affordable Care Act, or ACA, insurers that serve relatively healthy populations pay hefty fees to subsidize the insurance and care of riskier patients.
Some smaller insurers have called for caps on these so-called “risk adjustment” payments; officials at the federal Department of Health and Human Services recently said they will review the program later this year.
For Harvard Pilgrim, which has 2.7 million customers in four states, those risk adjustment payments were more than $40 million, “a substantial increase” from 2014, a spokeswoman said.
“Our industry continue to adjust to major changes related to implementation of the Affordable Care Act,” said Charley Goheen, the plan’s chief financial officer. “In light of these burdens, it is increasingly important for us to find effective ways to contain health care costs.”
Goheen said Harvard Pilgrim was able to keep the cost of providing medical care in check, saying it had a lower growth rate of medical expenditures in 2015 than other major insurers.
Some observers called the risk adjustment fees fair, saying they remove any incentive for insurers to avoid covering patients who are sick or at higher risk of illness. And besides, they said, the fees are no surprise.
“The whole idea is that you reward insurers for managing costs, not for finding the healthiest patients,” said Jonathan Gruber, an economist at the Massachusetts Institute of Technology who was an adviser on the state and federal health care laws.
“It’s true that if Harvard Pilgrim didn’t have to make that payment, they would have been closer to breaking even, but that’s not the only reason,’’ Gruber said. “There’s a constellation of things that affect profitability.”
Blue Cross Blue Shield, the state’s largest insurer with 2.8 million members and one of the recipients of risk adjustment payments, reported an operating loss of more than $30 million in its core insurance business.
The company said the loss stemmed in part from payments for taxes and health care subsidies that increased by $14 million, to $300 million, for the year, and from the high price of new medications for chronic conditions.
Overall, the Boston-based health plan posted a modest $15.1 million net surplus for 2015, thanks to income from investments and other sources.
Blue Cross Blue Shield’s operating losses were less severe than in 2014, when its insurance operations lost $118 million. It reported net income of $7.9 million for 2014.
“For us, the biggest issue in the year was weathering the investment markets,” said Allen Maltz, the plan’s chief financial officer. “We did earn money, despite the fact that there’s great volatility in the markets, so we’re very happy about that.”
“On the operating side, we’re not thrilled about losing $30 million, but that’s within our range,” Maltz added.
Tufts Health Plan, which had an operating surplus of $7.1 million in 2014, reported only a small operating loss of $139,000 in 2015. Meanwhile, membership in the plan grew by about 20,000 to more than 1,035,000.
Tufts said that in 2016 it will face a “challenging revenue environment and rising costs,” particularly prescription medicines.
As at Blue Cross Blue Shield, Tufts Health Plan’s investment income in 2015 shrank by about half compared with the prior year, amid a turbulent stock market.
Fallon Health, the smallest of the four insurers with around 222,300 members, reported an operating loss in its insurance business of $17.5 million, and an overall loss of $6.8 million.
That’s a step backward for the plan from 2014, when it posted a lower operating loss, $11.5 million.Dan Adams can be reached at email@example.com. Follow him on Twitter @DanielAdams86.