CareFirst profit increases 30.5% Revenue up 16.9% at Md.-D.C. Blue Cross holding company

Managed care

August 18, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

With investment and other income rising, CareFirst Inc., the holding company for the Maryland and District of Columbia Blue Cross plans, yesterday posted a 30.5 percent increase in operating profit for the second quarter.

The operating profit was $26.9 million for the quarter that ended June 30, up from the $21.7 million earned in the second quarter of 1997.

The CareFirst plans posted a hefty increase in revenue of $985.6 million for the quarter, up 16.9 percent from $843.1 million in the second quarter last year. However, the $142.5 million revenue increase was canceled out by a $140.0 million rise in medical costs and a $4.2 million rise in administrative expenses.

About $100 million of the revenue increase came in state payments for Medicaid enrollees, as Maryland switched to HMOs for its medical assistance for the poor, said G. Mark Chaney, executive vice president and chief financial officer of CareFirst.

Medicaid membership was 83,000 at the end of the quarter, up from 10,000 a year earlier. While some insurers have lost money on Medicaid, Chaney said CareFirst is running a margin of about 2.5 percent operating profit on Medicaid.

An additional $30 million of the increase came from Medicare HMO members. Enrollment was up from about 22,000 to about 27,000, and CareFirst began charging a premium to members in some rural counties. The federal government pays most of the premium and members in the metropolitan area do not pay any additional premiums.

Chaney said the Medicare HMO business is now close to a break-even point this year, after losing nearly $5 million in the first six months of 1997.

Costs of medical care were up in the Blue Cross indemnity business -- 90.1 percent of revenue, up from 87.4 percent in the same period a year earlier -- but down, as a percentage of revenue, in HMOs, where the company is able to exercise more control to 90.4 percent, compared to 91.9 percent last year.

While administrative costs were up slightly, because of the increased business they represented only 9.4 percent of revenue, down from 10.1 percent a year earlier.

Chaney said CareFirst had held administrative costs down by combining some operations of Blue Cross and Blue Shield of Maryland with those of Blue Cross and Blue Shield of the National Capital Area, including consultants and auditors, the data center and some upper-level management positions.

There were no layoffs produced by the consolidation; overall employment in the two plans remained at about 5,300.

CareFirst hopes to realize some increased revenue from the Maryland-D.C. combination, Chaney said. For example, it is beginning to offer its Medicare HMO coverage in the D.C. plan's territory. The most dramatic effect, he said, will not come until 1999 or 2000, as the plans combine products and medical networks.

The nonprofit holding company had an operating margin of 2.2 percent for the quarter. The average profit margin for the 17 publicly-traded managed care insurers is 1.1 percent, according Pulse, an industry newsletter.

"We're generally pleased," Chaney said. "It's a good, solid performance."

Pub Date: 8/18/98

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