Hartford Business Journal

16 Hartford Business Journal • April 23, 2018 • www.HartfordBusiness.com By Matt Pilon mpilon@HartfordBusiness.com H arvard Pilgrim Health Care CEO Eric Schultz isn't phased by the mega-mergers engulf- ing his industry. Despite major competitors like Aetna and Cigna teaming up with the likes of CVS and Express Scripts, respectively — deals some say could change the way healthcare is delivered in this country — Schultz said he still sees a role for regional insurers like his, which covers 1.2 million lives and recorded $3 billion in revenue across its four state-footprint in 2017. "Honestly, we aren't at a point where we're reacting to it," Schultz said during a recent interview at his company's Con- necticut headquarters at CityPlace I in downtown Hartford. "The best thing you can do is watch this in a very measured way so you know how to best compete, either as an innovator or a fast-follower." Harvard Pilgrim, a not-for-profit health insurer based in eastern Massa- chusetts, has been around for 50 years, but it's an upstart in the Connecticut market, launching sales here in the summer of 2014. Its Connecticut book of small- and large-group business has grown since then, but Schultz said he's well aware his company is a small regional player compared to the likes of Aetna, Anthem and Cigna — companies with large market shares and access to capital to make massive deals. "There will always be important op- portunities for regional local insurers and providers over the long haul, so that's how we see it," Schultz said. Insurance mergers aren't the only thing that could affect Harvard Pilgrim's business. Healthcare providers also con- tinue to make big moves of their own. At least 10 hospital mergers and acquisitions have been announced in Connecticut since the latter half of 2015. The pace picked up as Harvard Pilgrim was preparing to enter the Connecticut market, said Schultz, who lived in this state for over 30 years and who has worked in health care and insurance for 35 years. "It was one of the most rapid consoli- dations I've seen in a market," he said. What's resulted here is a "relatively short list of large systems," the largest of which are Yale New Haven Health, Hartford HealthCare and Trinity Health of New England. He said hospitals are trying to bolster their geographic position and improve their ability to recruit and retain the best physicians. The larger systems also give hospi- tals better leverage when negotiating with insurers, he said. That has led to contentious negotia- tions in some cases. Hartford Health- Care and Anthem, for example, last year had a very public contract stand- off that lasted seven weeks before they eventually agreed to a new deal. Schultz said the tables have turned a bit on insurers, which went through a similar consolidation wave about 20 years ago. "The real question now is: What will the healthcare systems do to effective- ly use their size for ultimately creating a better healthcare system?" he said. Growth, hurdles to entry Like in most industries, it's tough for a health insurer to target a new geographic area. It has to build relationships with hospitals and doctor groups, and also contend with claims volatility that comes with having a relatively small number of customers. "If you go into a state and don't have many lives, that's a big negative," Schultz said. But he said things are starting to come together for Harvard Pilgrim in Connecticut. The company now has about 32,102 fully insured members in the state en- rolled in small- and large-group health plans, plus an additional 1,420 enrolled in self-insured plans it administers. By comparison, Anthem — the state's largest health insurer — had 1.2 million members in all types of health plans as of Sept. 2017, fol- Staying the Course Amid mega-mergers, Harvard Pilgrim Health Care sees role for independent, regional insurers Harvard Pilgrim's Financial Snapshot Harvard Pilgrim has lost money the past few years, which it partly blamed on payments to other insurers mandated by the Affordable Care Act's risk adjustment program. 2015 2016 2017 Revenue $2.7 billion $3.1 billion $3 billion Operating loss $(78.8 million) $(91.3 million) $(28.3 million) Net loss $(54.8 million) $(48.5 million) ($8.7 million) Source: Harvard Pilgrim Harvard Pilgrim CEO Eric Schultz visited his downtown Hartford hub recently to meet with employees and brokers. Schultz says the not-for-profit insurer has made hard-won gains in building up its provider network, and sees potential for additional growth in its Connecticut customer base in the small- and large-group markets. HBJ PHOTO | MATT PILON

• Cover