Md. Blues profit rises by 141% Earnings

July 24, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

Blue Cross and Blue Shield of Maryland posted profits of $19.8 million for the second quarter, which ended June 30, a 141 percent increase compared with the same period last year.

The state's largest health insurer also said yesterday that it boosted reserves in the quarter by 40 percent, to a five-year high.

Much of the increase stemmed from the sale last month of part of a health-care subsidiary, which in turn allowed Blue Cross to appraise the business and add the higher value to its reserves. Even with the increase, however, the reserve remains below optimal statutory and industry-established levels.

Blue Cross' quarterly report was released three weeks before the state's Aug. 15 deadline and comes on the heels of public criticism from state regulators, a "weak" financial rating by an independent insurance research firm and a subpoena from a U.S. Senate subcommittee looking into the solvency of Blue Cross and Blue Shield plans across the nation.

Yesterday's report showed another three months of profits in what is now a 3 1/2 -year run and comes at the beginning of a cycle that has historically resulted in losses -- a cyclical phenomenon triggered when the price of medical goods and services outpaces premiums set in previously negotiated contracts.

In the second quarter, Blue Cross revenues were $355 million, 7 percent more than in the same period last year, largely because of increases in total premiums and a $909,000 profit for the company's health maintenance organizations, the company said.

"This would normally be the first year of a down cycle. So far, we are doing better than anticipated," said Peter J. Campisi, vice president and chief financial officer.

Blue Cross said that on June 30, its reserves, money to pay unexpected claims, were $101.8 million, up from $72.4 million at the end of March. State regulators have said the company should have about $120 million in reserves, measured by industry standards.

The addition to the reserve means Blue Cross could pay about a month's worth of claims and expenses if the money it has set aside for claims was unexpectedly used up. Two months' worth of funds is the norm.

Blue Cross officials say that if the reserve requirement was based only on its insurance business and didn't include no-risk items such as its health-maintenance subsidiaries, the insurer would actually have more than two months' reserve.

The $29.4 million addition to reserves during the period consisted largely of the $19.8 million quarterly profit and $12.4 million that stemmed from the sale last month of a minority interest in one of its subsidiaries, Green Spring Health Services Inc., which manages mental health care for Blues plans around the country.

That sale brought Blue Cross a profit of $2.5 million, which was added to reserves. As a result of the sale, the Blues were also able to value the 80 percent share of Green Spring that they continue to hold and add this value -- $10.4 million -- to its reserve.

In a statement, Blue Cross and Blue Shield President Carl J. Sardegna said he was pleased with the "continued strong financial performance" and noted that the large increase to surplus would provide "additional protection for consumers and allows us to continue as the Maryland insurer of last resort."

Blue Cross and Blue Shield of Maryland

%Three months ended 6/30/92

......Revenue.... .... .... Net.... .... .... Share

'92...355,200,000... .... 19,800,000... ... --

'91...331,000,000... .... 8,200,000 ... ... --

% change +7.3 ... .... .... ..+141.1... ... ... NA

Six months ended 6/30/92

.... Revenue.... .... .... Net.... .... .... Share

702,800,000... .... 27,000,000... ... NA

'90 663,200,000... .... 12,600,000... ... NA

% change +6.0... ... ... . +114.2... .... ... --

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