March 04--HealthNow New York, the region's largest health insurer, said Monday that its profits for last year soared nearly eight-fold, as a jump in revenues and slightly lower administrative expenses offset an increase in medical costs for members.
The Buffalo-based parent of BlueCross BlueShield of Western New York reported net income of $31.5 million, up sharply from $3.94 million for 2011, when the insurer suffered a major increase in medical expenses from 2010.
That's still well below the prior two years, however, when the company earned $52.69 million and $62 million, respectively, in 2010 and 2009, but it's 24 percent higher than $25.41 million in 2008.
Total revenues rose, up 2.6 percent to $2.46 billion from $2.397 billion. That's the highest level of revenues in at least five years, and may be a company record.
"The financials reflect rigor and discipline, particularly in the midst of an environment with heavy regulation and the mandates from health care reform," said Steve Swift, the company's executive vice president and chief financial officer. "Our reserves are appropriate, our administrative costs are well below the national average and in spite of medical costs increasing faster than the rate of inflation, we maintained reasonable rates for our members."
As a nonprofit, the insurer's revenues are reinvested in the company and added to reserves -- its capital and surplus that is used to cushion unexpected expenses and ensure its ability to pay claims. HealthNow's reserves rose 6.9 percent to $565.3 million.
The weak performance a year earlier was reflected in the company's compensation for its top executives, especially President and CEO Alphonso O'Neil-White. His total pay fell 32 percent to $1.1 million, as his bonus and other compensation was slashed 70 percent from $759,673 to $224,807. His base salary, which is contractual, rose 2.9 percent to $872,000.
O'Neil-White last month announced his intention to retire after a new CEO is chosen. He has been president and CEO since 2003, and joined the company in 1996l.
HealthNow, like many companies, sets its executive pay based in part on compensation levels at similarly sized insurers, as well as in other industries in markets similar to those in Western New York, Albany and Philadelphia, where it maintains significant operations. The bonus is considered "at risk" and is based on individual and corporate performance in the prior year, including measurements of quality, strategic goals and financial results.
Health insurers have been struggling for many years to maintain and even boost their earnings in the face of a difficult business climate and immense public pressure from consumers, regulators and politicians to tighten expenses, rein in excessive executive pay and limit rate hikes or even reduce premiums. It's particularly hard to predict medical expenses for members, which can be lumpy from year to year.
Under New York state law, health insurers operating in the state must report their yearend financial results and executive compensation by March 31 of the following year. Independent Health Association spokesman Frank Sava said the Williamsville-based insurer, the region's No. 2 carrier, will not report its results until after that time.
HealthNow said its net underwriting gain, or profit after medical and operating costs, swung back to a profit of $25.58 million from a loss in 2011 of $17.62 million. That's a 1 percent profit margin. However, that's still lower than the prior three years, when the underwriting gain totaled $26.4 million, $38 million and $47.78 million, respectively.
Total medical and hospital expenses for members rose just under 1 percent to $2.19 billion last year, as the company spent 89.1 cents of every premium dollar on member costs. Claims adjustment expenses rose 9 percent to $51.3 million. Administrative expenses, or overhead, fell less than 1 percent to $190.98 million. The net investment gain fell 3.7 percent to $32.98 million.
The company's total membership continued to fall, as it has done for each of the last five years, as the company has seen a "steady increase" in self-funded employers who pay for their own claims. HealthNow reported 473,249 members at the end of 2012, down 2.8 percent from 486,675 in 2011, and down 14 percent from 553,149 in 2008. Self-funded group members, and individual BlueCard members, are not included in the membership totals, but the company said they total another 300,000 members across all lines of business.
Among other top officials:
--Cheryl Howe, executive vice president of operations, earned a total of $576,354, including a $469,693 salary and $106,661 in additional compensation. Howe has been at the company for 26 years.
--Stephen Swift, executive vice president and chief financial officer, received $471,763 in all, including a $437,000 salary and a $34,763 bonus. Swift has been with HealthNow since 2009.
--The company's 12 board members received a total of $616,550, up 20 percent from $515,300, as HealthNow added three new directors in the last year to better represent its geographic diversity and broaden its board committees.
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