Blue Cross profit dropped 26% in 1995 Enrollment, revenue remained flat

March 02, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

Blue Cross and Blue Shield of Maryland earned $44.3 million in 1995 -- down 26 percent from its 1994 profit -- as enrollment and revenue remained flat, according to figures the company released yesterday.

Holding profit down was a rise in the cost of care of about 2.4 percent, to $1.7 billion, while premiums failed to keep pace in a price-sensitive competitive market. Administrative expenses, $188.9 million, were down 7.9 percent.

Gary C. Baker, the companies' controller, was pleased with 1995 results: "We are doing the job of balancing the pricing and the financial stability and the quality."

Almost all of the profit -- $40.6 million -- went to increase Blue Cross and Blue Shield's statutory surplus, which stood at $197.8 million at the end of the year. In 1992, the surplus slipped to $25 million, throwing the company's solvency into question.

The company measures liquidity in the number of months' expenses that can be covered from cash and investments. That's now 2.4 months, up from 2.1 at the end of 1994 and 1.1 in 1992. The company considers 1.5 months a minimum; the average for Blue Cross plans nationally is about three.

Mr. Baker said 1994 profits were unusually high because premiums set in 1993 anticipated continued growth in health care costs, but the costs leveled off. Consequently, he said, premiums were held down in 1995 -- actually declining, on average, in the growing health maintenance organization segment of the company's business.

The HMO segment retained its profitability in 1995 and all of the earnings drop came in the traditional insurance business. In HMOs, Blue Cross and Blue Shield reported profits of $18.1 million on $530 million in revenue, compared with profits of $17.7 million on revenues of $492 million in 1994.

Simply maintaining profitability in the HMOs "is a positive in this market because of the price competition," Mr. Baker said. "We're very pleased."

In traditional insurance, the company reported $26.2 million in profits on revenues of $1.36 billion, compared with profits of $42.2 million on revenues of $1.41 billion in 1994.

Hurting profitability in traditional insurance, Mr. Baker said, was a delay in receiving approval from the state insurance commissioner to reduce reimbursements to doctors and other providers by an average of 15 percent. The four-month wait for approval cost the company $5.3 million, he said.

Blue Cross and Blue Shield is asking the state legislature this session to free the company from oversight over provider reimbursements, so it can change rates as quickly as for-profit competitors do.

Membership in the five Blue Cross HMOs -- CareFirst, Columbia Medical Plan, FreeState Health Plan, Potomac Health Plan and Delmarva Health Plan -- grew 15.6 percent during 1995 to 324,407.

Some of that growth came from "migration" of traditional insurance customers. There were 1,328,000 total subscribers for Blue Cross at the year's end, down 1.4 percent from a year earlier.

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