• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Blue Cross Profits Won't Buy Relief for Premium Payers

Posted on: Monday, 6 March 2006, 15:01 CST

By Jeff Zimmer, The Herald-Sun, Durham, N.C.

Mar. 4--Profits are up at Blue Cross but that won't translate into lower premiums for its 3.3 million members, company officials said Friday.

The nonprofit insurer continued its three-year streak of record results in 2005 with a $167.6 million profit on revenues of $3.5 billion, Blue Cross reported Friday. It was a $34.2 million fourth-quarter profit -- the highest fourth-quarter profit ever for the company -- that helped boost the insurer's bottom line to its second highest amount ever.

The company's 2005 performance exceeded the $155.9 million profit Blue Cross produced in 2004 but it didn't match the high-water mark of $196 million the company generated in 2003. Up until 2003, the biggest profit Blue Cross and Blue Shield of North Carolina had ever generated was $85.6 million in 2001.

But as medical costs keep rising, Blue Cross says it'll have to keep pace by raising premiums.

In 2005, premium increases averaged about 8 percent over the insurer's total membership, said Dan Glaser, the company's chief financial officer. But faced with medical costs continuing to rise, Blue Cross has premiums going up on average between 11 percent and 13 percent this year, he said.

If [medical costs] go down, that increase would go down," he said.

State insurance regulators have been watching the state largest health insurer's balance sheet balloon and say they like the fact that the company's profit ratio -- its profit as a percentage of total revenue -- is dropping.

But as the insurer keeps moderating its profits, it should do the same with premiums, said a spokeswoman for the N.C. Department of Insurance.

"We'd like to see some of that carry over to the policy holders in lower premiums," said spokeswoman Kristin Runger.

The healthy stream of profits have helped Blue Cross and Blue Shield of North Carolina boost its reserves to $980 million by the end of 2005, up from $743 million at the end of 2003.

While some health care advocates have attacked the company's growing profits and reserves, they're missing the point, said Glaser.

"You always have some people who point to this who don't understand a strong Blue Cross is good for our customers and North Carolina," Glaser said.

Everything growing Additionally, while the company's profits have grown dramatically over the past three years, so has its revenues and expenses, Blue Cross officials say. Last year the company's net income ratio -- its profit as a percentage of total revenue -- was 4.4 percent, which translates to 4.4 cents of profit for every dollar of revenue. In 2004, the net income ratio was 4.6 percent and in 2003 -- the year of the record $196 million profit -- it was 6.2 percent.

The company said it has a target range of 3.5 to 4.5 percent for its net income ratio.

But however you measure profitability, the insurer's bottom line has some questioning its nonprofit status.

"They are a nonprofit and we'd like to see them act like it," said Runger, the insurance department spokeswoman.

Steve Graybill, a senior health care consultant with Mercer Health and Benefits in Charlotte, echoed that feeling. "Is the profit appropriate given the nonprofit status?" he said. "That's something they need to figure out."

He cited Blue Cross of Tennessee, which returned $67 million to subscribers in 2003 after it overshot its profit target.

But Blue Cross noted it paid $142 million in federal, state and local taxes last year.

While Blue Cross talks about its medical expenses rising, the company's operating expenses have been on the rise too. In 2005, it cost $771.7 million to pay for the company's operations, up 17 percent from $661.6 million in 2004.

Most of that increase was the result of the company adding 540 employees last year, which were needed to handle extra business, Blue Cross said. The company has more than 4,000 employees now, with most located in the firm's Durham and Chapel Hill offices.

The company's membership has also grown, with the insurer adding 180,000 subscribers in 2005 to bring its total membership to almost 3.3 million. Blue Cross has added almost 800,000 members during the past five years.

-----

To see more of The Herald-Sun, or to subscribe to the newspaper, go to http://www.herald-sun.com.

Copyright (c) 2006, The Herald-Sun, Durham, N.C.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

Source: The Herald-Sun

More News in this Category