Published in Health Care

Analyst expects strong year for Michigan health plans after first quarter losses

BY Tuesday, July 21, 2020 02:43pm

Health plans in Michigan should post strong earnings for 2020 despite poor results in the first quarter from investment losses after the onset of the COVID-19 pandemic.

The outlook “looks very good” for the rest of the year, as Michigan health plans largely regained investment losses from the first quarter, according to an analysis by Minneapolis, Minn.-based health care consultant Allan Baumgarten.

Health care consultant Allan Baumgarten COURTESY PHOTO

As a result, “the profit outlook for the full year looks very good. The decline of claims and utilization because of the suspension of non-emergency surgeries and the reluctance of people to go in for routine or even acute care will more than offset additional costs of treating COVID-19 patients,” Baumgarten wrote in an annual analysis on the Michigan market.

A state order that prevented hospitals from performing non-essential procedures and surgeries for several weeks led to a favorable medical claims trend for health plans.

The resulting favorable claims trend led many health plans — including Blue Cross Blue Shield of Michigan and Grand Rapids-based Priority Health — to issue premium credits to employers for June and July.

The first-quarter hit to health plans’ investment income associated with Wall Street’s decline generated losses and lower net income for health plans, Baumgarten said. Investment losses, combined with the decision by some health plans to make advance payments on their 2020 Affordable Care Act tax obligations, contributed to the net losses in the first quarter, he said.

The first quarter results came after HMOs in the state collectively recorded $481.8 million in net income for 2019, down 4 percent from the year before, according to Baumgarten’s analysis.

The 2019 earnings were bolstered by strong investment income, as underwriting income declined to $303.7 million from $429.1 million in 2018, Baumgarten said.

Priority Health was one of the strongest performers among HMOs in 2019. As MiBiz reported in March, Priority Health recorded $188 million in net income last year across all lines of business. The earnings came on revenues of $4.17 billion from commercial, individual, Medicare and Medicaid health policies, $118 in operating income and higher investment earnings of $69.7 million.

The 2019 results compare to net income of $137.2 million in 2018 on $3.82 billion in revenues. Priority Health in 2018 generated $113.8 million in operating income from underwiring health policies and $25.3 million in investment earnings.

Despite expectations for solid earnings for Michigan HMOs this year, Baumgartner’s analysis warns of potential problems ahead for health care providers as job losses from the pandemic and resulting economic recession drive up the number of people left uninsured. He noted a report from Families USA that said 222,000 people in Michigan lost health coverage between February and May as the economy declined and job losses mounted.

“More may follow if the reopening of the economy is further delayed (and) employers who have continued to pay for coverage for idled employees may elect to stop,” wrote Baumgarten, suggesting that health plans and health systems may need to rethink their growth strategies.

“This decline in coverage has serious implications for the health plans, who will lose premium revenues and may face adverse selection from those that keep their coverage. Hospitals and physicians will lose patients or see some additional patients present with coverage like Medicaid that pays less than employer group plans,” his report said. “After the double hit of the COVID-19 pandemic and the economic downturn, the next few years may well be a time of retrenchment for both health plans and health systems, not growth.”

Thousands of people who lost their job were able to get health coverage through Medicaid, which added 68,000 net enrollees in April alone, buying an individual policy or through a spouse, he said.

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