Blue Cross plans cut in rates

October 07, 1994|By Kim Clark | Kim Clark,Sun Staff Writer

Blue Cross and Blue Shield of Maryland announced yesterday it will cut its rates by 7 percent to 15 percent for most of its 1.4 million customers, sparking predictions of a price war among the state's health insurers and delighting employers across the state.

Blue Cross spokesman Michael Streissguth said that reductions in the insurer's administrative expenses, as well as the increasing popularity of its lower-cost health maintenance organization would enable it to cut its premiums starting Nov. 1.

L "The goal is to bring more people into Blue Cross," he said.

Blue Cross suffered a drop in customers early this year, he said, although he could not say how much enrollment was down.

Mr. Streissguth insisted the price cuts "would not jeopardize our reserves" of retained earnings that regulators require the insurer to hold as a buffer against future claims, but he declined to say how the cuts would affect the Blues' profitability.

In 1992, a congressional committee criticized Blue Cross for lavish spending and financial mismanagement. Its reserves, which had sunk as low as $9 million in December 1992, bounced back to $130 million by June 30 of this year, its most recently reported quarter, because of improved profitability.

Mr. Streissguth warned, however, that Blue Cross could not guarantee every employer and worker a price cut, since most customers' premiums also depend on their medical histories. People who buy insurance on their own will not see a drop in premiums, he added. Mr. Streissguth could not say how many people would be eligible for the new rates.

Mr. Streissguth said the insurer can cut its prices because it has reduced staffing by 200 employees to 3,500 since January.

In addition, he said, Blue Cross' costs are lower because 56 percent of its customers now belong to managed care programs, up from 3 percent from a decade ago.

Insurance brokers and administrators praised the cuts yesterday, predicting they would help Blue Cross regain customers.

"Over the last several years Blue Cross has been losing market share, primarily because of cost," said Bill Simmons, who runs an insurance administration company and is president of the Baltimore Health Underwriters Association.

Customers who learned of the price cuts yesterday "were very pleased," Mr. Simmons said. And the cuts are likely to benefit Marylanders who aren't Blue Cross customers, because competitors are likely to match the price cuts, he added.

"You'll see other carriers coming back and doing the same thing," Mr. Simmons said.

But competitors warned that a price war could damage financially strapped insurers.

Stewart Lavelle, general manager for U.S. Health Care, a competing insurer, said he was surprised to learn of the price reduction.

He said price cuts usually mean drops in profits since most of an insurer's costs are fixed.

"Maryland is a regulated-hospital state. That means approximately half your costs are regulated." And most of the remaining costs are also already set: "Doctor fees are generally at a fairly competitive level to begin with," Mr. Lavelle said.

Insurance companies suffer from an "underwriting cycle. We have three to five good years then three to five bad years," Mr. Lavelle said. The last "bad cycle," in which price cuts drove some insurers out of business, ended in the late 1980s, he said.

"We've been in a good cycle since then," and may be primed for another bad cycle now that "increasing relevance is put on price," Mr. Lavelle said.

One Blue Cross customer contacted yesterday was thrilled to learn of the rate reduction.

"We are utterly delighted," said Alex Doyle, president of Micro Machining Inc., of Baltimore.

Mr. Doyle said his premiums have increased by an average of 8 percent in the last five years, and has asked his 28 workers to shoulder more and more of their insurance burden. His workers now pay about a third of the premium, up from about 10 percent in 1990, he said.

He said he's never had a decrease in his health insurance premiums, and has already thought about how he'd like to spend the savings: "We will invest in new equipment," he said.

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