Priority Health bottom line hit by rising drug costs, higher utilization in 2023
Mar 28, 2024
The rising costs for
prescription drugs and higher utilization rates for medical care combined to
cut into Priority Health’s bottom line in 2023.
The Grand Rapids-based
health plan recorded $161.8 million in net income for last year, most of which
came from investments. The 2023 financial results compare to $209.9 million in
net income in 2022.
Even as Priority Health
grew premium revenue by nearly 13%, its bottom line was hit by high-cost
prescription drug costs, specifically for the new generation of weight-loss drugs
known as GLP-1 such as Ozempic and Wegovy, and other specialty
medications, CFO Nick Gates told Crain’s Grand Rapids Business.
Rising utilization rates
for care also drove up medical claims in areas such as outpatient surgeries,
paying for members seeking treatment for the flu and RSV, and the RSV and
COVID-19 vaccines. The RSV vaccine introduced last year added about $14
million in additional cost in the fourth quarter alone. Paying for members to
get the COVID-19 vaccine last year cost nearly $32 million.
“For the past three
years, the health care industry has faced ongoing pressures, but the most
concerning being the rise in utilization, the high utilization for medical
procedures and high-cost pharmaceuticals (that) are putting margin pressure on
the insurance industry,” Gates said. “This is becoming a significant issue in
the industry in terms of spend.”
Priority Health’s
largest plan, an HMO that has nearly 762,000 members, paid $635.3 million in
claims in 2023 for prescription drugs, a 16.3% increase over 2022 and a rate
that’s more than double its membership growth. Hospital and medical claims for
the Priority Health HMO, which includes injectable specialty drugs, increased
by 15.1% to $3.21 billion last year, according to an annual financial report filed
with state regulators.
Priority Health’s
Medicaid HMO, known as Priority Health Choice Inc., experienced a 24.2%
increase in claims for prescription drugs to $297.2 million, and a 9.8%
increase in hospital and medical claims to $660.2 million, according to the
annual financial filing to the Michigan Department of Insurance and Financial
Services. The higher prescription drug spending and medical claims came even as
Priority Health Choice recorded a 5.4% enrollment decline to 252,344 members as
eligibility requirements put in place during the pandemic expired and thousands
of people were disenrolled.
Those kinds of cost
increases eventually work their way into premiums that employers and
individuals pay for health coverage.
Priority Health and
other health insurers currently are formulating rate plans for 2025 to submit
this spring to state regulators to consider.
“The GLP-1s, the
vaccines and the high cost for specialty drugs, it’s impacting everyone,” Gates
said. “We’re currently evaluating our 2025 pricing decisions, but we do
anticipate these high trends will continue into 2025, and so they will need to
be factored into pricing.”
Priority Health last year
secured regulatory approval for a 6.7% rate increase for small businesses that
use the HMO for employee health coverage. Priority Health Insurance Co., which
sells PPO policies, raised rates 6.3% for 2023. Statewide, rates for small
businesses this year increased 7.1%.
The
rising costs for prescription drugs are affecting other health plans as well.
In
recently reporting a $544 million operating loss for 2023 on $36.3 billion in
revenue, Blue Cross Blue Shield of Michigan cited a $1.4 billion year-over-year
increase in claims costs and a $1.8 billion rise in pharmacy costs driven by
high-priced specialty drugs, as Crain’s recently reported.
Specialty
drugs accounted for $750 million of the cost increase for prescriptions. Blue
Cross Blue Shield paid $350
million more in claims in 2023 for GLP-1 drugs for diabetes and weight
management.
“The
health care economy, in Michigan and nationally, is experiencing an extreme
wave of cost pressures brought on by surging utilization and skyrocketing
demand for high-cost pharmaceuticals,” said Blue Cross Blue Shield President
and CEO Daniel Loepp.
Priority
Health covers GLP-1 drugs for members to manage their diabetes, Gates said. Coverage for
weight loss “is limited and depends on the plan type and medical necessity of
members,” he said.
“We
recognize the potential benefits of GLP-1s for weight loss, however we must
also consider the questions that remain about long-term safety, efficacy and
affordability. We will continue to evaluate new evidence and guidance as they
become available,” Gates said. “We encourage our members to talk to their
doctor about the best treatment options for their individual situations.”
Overall,
Priority Health recorded $26.7 million in operating income in 2023 on health
coverage alone with $7 billion in premiums revenues across all types of health
plans, for a slim 0.4% margin. That’s well off the 2% margin the insurer
typically targets each year.
Priority
Health made $71 million on investments last year, plus $65 million in dividends
from Total Health Care plans in Detroit that were acquired in 2020. The
investment and operating income, minus $1.8 million in federal income taxes
paid, resulted in $161.8 million in net income.
Priority
Health’s HMO made $91.2 million in net income last year on $5.37 billion in
premiums, with a $20.4 million operating loss on health policies and $111.7
million in investment income, according to the state filing.
Priority
Health Insurance Co. made nearly $6.8 million in net income on $382.9 million
in premiums, with $3.4 million in operating income and $5.2 million in
investments, minus $1.8 million in federal taxes.
Source: Crains Grand Rapids