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Rough 2014 for Bay State insurers

In the state with the highest per-capita healthcare spending, most of the mainstay insurers spent the last year struggling to harvest operating income.

Of Massachusetts' four largest insurers, only Tufts Health Plan was able to eke out a real profit on operations last year.

The top-ranked health plan in the country according to the National Committee for Quality Assurance, Tufts Health Plan earned a net income $59 million in 2014, with an operating income of $7 million, up from $4 million the year before. With investment income of $52 million, Tufts Health Plan ended the year with 1 million members, a total net worth of $1.1 billion and no debt.

Though it was able to avoid losses from health reform fees and the hepatitis C breakthrough Sovaldi, chief financial officer Umesh Kurpad said the insurer is still facing "a challenging revenue environment and rising costs, particularly pharmacy, with more specialty drugs on the horizon."

The challenges were similar but the outcomes somewhat different for Blue Cross Blue Shield of Massachusetts, the state's largest insurer with more than 40 percent market share and 2.8 million members.

BCBSMA did bring in an after-tax net income of $8 million, thanks to investment income of $110 million. But the insurer posted an operating loss of $118 million, much more than the $17 million operating loss in 2013. The nonprofit company hasn't yet disclosed revenues or debt status.

Sounding a familiar theme, BCBSMA chief financial officer Allen Maltz attributed the losses to a 30 percent year-over-year increase in spending on specialty medications and taxes, fees and expenses stemming from the Affordable Care Act.

"We had planned for an operating loss so that we could keep premium increases as low as possible and to help fund significant investments in new technologies and services," Maltz said.

The state's second largest insurer, Harvard Pilgrim Health Care, fared likewise, bringing in a net income of $8.4 million on $2.5 billion in revenue, with investment and other income of $26 million--but an operating loss of $18 million.

"Our industry is now subject to new and significant regulatory fees," said Harvard Pilgrim CFO Charley Goheen. The year before, the insurer posted an operating income of $1.2 million.

Goheen said Harvard Pilgrim "incurred substantial, unplanned costs related to public exchanges," including an expansion into the Maine and New Hampshire individual marketplaces and the ongoing challenges with the Massachusetts Health Connector.

Nonetheless, Gogeen said, "we have been effective in keeping premiums as low as possible, and we continue to strategically invest in initiatives that will bring continued value to our customers." Last year, he noted, "we completed implementation of a highly sophisticated, seven-year technology strategy to create a new, advanced core insurance system that better aligns with the evolving healthcare and health insurance needs of our customers and providers."

Fallon Community Health Plan, where Gogeen was CFO for a decade in the 2000s, posted net income of $3.5 million last year, on revenue of $1.3 billion--again thanks to investment and source sources totalling $15 million. On operations, the 225,000-member insurer took a loss of $11.5 million.

"Fallon made steady progress in 2014, entering new markets and lines of business and offering solutions to a diverse population of ages, income levels and health statuses," said president and CEO Patrick Hughes.

The operating loss in particular stems from significant costs for hepatitis C medications and ACA fees, as well as a one-time investment in a joint venture for a long-term care and aging health campus in western New York called Fallon Health Weinberg.

"Our results show the fundamental resilience of our organization," added executive VP and CFO R. Scott Walker. "We've balanced challenges that exist in this evolving healthcare environment by investing in technology infrastructure, care management, new product development, network development and geographic expansion," he said. "We've made disciplined and responsible decisions that ultimately result in giving consumers more choice and control over their healthcare costs."

Meanwhile, an up-and-comer nonprofit HMO owned by Massachusetts' largest health system had its own losses.

Neighborhood Health Plan, acquired by Partners HealthCare in 2012, lost $110 million in its most recent fiscal year. A surge of medical claims, Sovaldi spending and a dysfunctional state insurance exchange all contributed to the loss (which in turn contributed to a $22 million loss for Partners) and the decision to set aside another $92 million in premium deficiency reserves for this year.

Study finds prices, not utilization, drive state's health spending Massachusetts is facing a crisis of healthcare costs, holding the distinction of the state with the highest per capita health spending for more than a decade.