While businesses and consumers struggled during 2004 with the ever-growing price of health care, Highmark Inc., the region's dominant health insurer, saw its profits nearly triple.

Highmark yesterday reported net income of $309 million for the year from its health care business alone, and saw its overall profit after investments, taxes and other expenses reach $310.5 million in 2004. In 2003, its net income was $105.8 million.

The profits swelled the company's controversial surplus to $2.5 billion.

Its performance meant that the Big Three of health care in Pittsburgh -- Highmark, the University of Pittsburgh Medical Center and the West Penn Allegheny Health System -- all reported gains. At the same time, most businesses that provided coverage to their workers saw their premiums jump, and many passed more of their costs on to employees in the form of higher co-pays and increased contributions for coverage.

"Our community should be outraged that in the midst of a health care crisis, with funding shortages and working people lacking health coverage, we have a nonprofit health insurance provider with a $310 million profit," said Kate Robinson, executive director of the Consumer Health Coalition, a Pittsburgh-based consumer advocacy group.

Industry observers noted that Highmark's increased profitability matched an upturn for health insurers across the country. Many insurers saw lower-than-anticipated increases in health care costs during 2004, the company said, and that held true at Highmark, where claims costs rose by 13 percent, compared with a 17 percent increase the year before.

But 2004's premium increases, which fueled widespread complaints, were based on its claims experience in 2003, when costs were rising faster, said Nanette DeTurk, senior vice president of finance at Highmark. So Highmark was collecting higher-priced premiums last year, a time when its health care costs were moderating. The mix fueled a profit surge.

DeTurk said Highmark expects profits will be lower this year because adjustments have been made to reflect last year's moderated claims experience. "The health business is very cyclical," she said.

Businesses are indeed seeing more moderate premium increases for 2005, but that moderation still doesn't feel very good, said Cliff Shannon, president of SMC Business Councils. Small businesses represented by Shannon's group were paying premiums during 2004 that were, on average, 20 percent higher than the year before.

"In no way, shape or form is a premium increase for 2005 that is on average five times the rate of general inflation moderate in the eyes of a small business owner or small business employees," he said. "I think that the announcement of Highmark's very favorable financial results will be greeted with a marked lack of enthusiasm."

In negotiating contracts for 2004, Highmark apparently pursued a strategy of seeking higher premiums without worrying about losing market share, said David Straight, president of The Benefits Network, a consulting firm in Wexford. Indeed, Highmark's membership in health care programs dropped by 300,000 to 4.1 million members in 2004.

Now, Highmark appears to be more concerned about holding on to and gaining customers, he said, citing the company's willingness to cut prices when needed to win an account. The company noted yesterday that its enrollment had grown by more than 200,000 since the start of the year.

David Lagnese, a benefits consultant with Towers Perrin, said the companies he works with will likely have a mixed reaction to the news of Highmark's profitability. They want Highmark to be financially strong -- but not at their expense.

"They'll probably remember this when Highmark comes asking for rate and fee increases," Lagnese said.

The additional money for Highmark's surplus attracted the attention of consumer groups, who have argued in recent years that the state's nonprofit insurers should be doing more for uninsured Pennsylvanians. Gov. Ed Rendell announced an agreement this winter in which Highmark and other Blue Cross plans adopted a formula for determining exactly how they should put dollars toward their social mission.

But Rendell's announcement was quickly followed by a ruling by the state insurance commissioner that Highmark's surplus -- then estimated at $2.2 billion -- was not excessive. Even with the additional $300 million that Highmark put toward surplus during 2004, the company's current balance is still within the acceptable limit as defined by the commissioner's ruling, DeTurk noted.