Published in Health Care

Priority Health attributes $29.4M first quarter net loss to accounting adjustment

BY Sunday, May 31, 2020 10:52pm

GRAND RAPIDS — Priority Health’s first quarter net loss in its HMO business stems from what’s described as a “quirky” accounting adjustment required under state regulations.

Otherwise, the Grand Rapids-based health plan performed well financially during the January-to-March period that included the effects of the first few weeks of the COVID-19 pandemic.

Priority Health CFO Mary Anne Jones COURTESY PHOTO

“I would say we were in really great shape for the first quarter,” CFO Mary Anne Jones told MiBiz. “Our core strategy and operations and performance are still as strong as ever.”

Priority Health’s 592,000-member HMO, which accounts for more than half of its book of business, made $42.6 million in the first quarter underwriting health policies, up from a $37.2 million underwriting gain in the same period of 2019, according to a quarterly financial report filed in May with state regulators.

The first quarter 2020 underwriting gain came on $975.8 million in total revenue, versus $841.2 million a year earlier, and generated a margin of 4 percent, “which is strong and consistent with what we see in the first quarter every year,” Jones said.

Net investment income for the quarter totaled $6.2 million, slightly less than a year earlier.

Overall, Priority Health recorded a net loss of $29.4 million that resulted from the $72.1 million accounting adjustment.

“We did some shifting in our organizational assets and it didn’t change anything at all related to our operations (or) our total capital, but because we had to follow this kind of quirky (requirement) we have to show this adjustment, ” Jones said of the quarterly filing to the Michigan Department of Financial and Insurance Services. “It’s a requirement of how we have to report it to the regulators.”

Priority Health ended the first quarter with 591,991 people enrolled statewide in HMO policies, an 8.7-percent increase from a year earlier.

Despite the postponement or cancellation of non-essential, elective surgeries and procedures in mid-March as the COVID-19 pandemic hit Michigan, the amount Priority Health’s HMO paid in medical claims in the first quarter still grew more than 10 percent from a year earlier. Priority Health’s second quarter report should better reflect the effect of the state’s order on non-essential care, although that could get offset somewhat as hospitals resume those services and see pent-up demand, Jones said.

The quarter also saw a “little bit” of paying hospital claims involving patients with COVID-19, which also was offset by a lack of non-emergency medical services in late March, she said.

Priority Health noted in the first quarter report that it was “actively monitoring” the effects of the pandemic and “continues to prepare accordingly.”

Citing lower medical claims and utilization rates during the COVID-19 pandemic, Priority Health said three weeks ago it would provide temporary rate reductions to employers and individual policyholders. The health plan intended to apply a 15-percent reduction to June and July premium bills for small businesses with two to 50 employees, and for individual policyholders enrolled in the MyPriority health plan. Rate relief for large group employers will come later this year.

Medical claims that were “significantly lowered” in April and May are projected to now “ramp back up maybe to more normalized levels,” Jones said. “The big question mark is will they get back to normal this year or not? It’s still too early to tell.”

For 2021, Priority Health recently filed a moderate proposed average statewide rate increase of 2.56 percent for small employers. Over the last two years, Priority Health’s annual rate increase for small employers was just 1.2 percent for HMO and point-of-service policies and flat for PPO plans.

Blue Cross Blue Shield of Michigan also plans to offer rate relief resulting from the inability of hospitals to perform non-essential surgeries and procedures, as well as people deferring medical care since mid-March. Blue Cross Blue Shield plans to provide fully insured employers in the small group market who have 50 or fewer employees with a 30 percent premium credit in July.

Blue Cross Blue Shield also proposed small adjustments in 2021 for small group policies: A statewide average increase of 0.9 percent for its PPO plans, and 1.9 percent for HMOs, “and it’s possible some of those groups will have negative rates,” Ken Dallafior, executive vice president for Blue Cross Blue Shield’s commercial business, told MiBiz two weeks ago.

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