CareFirst reports flat earnings

Results include one-time charge of $16.6 million

Health care

February 29, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

With record overall membership but growing red ink in Medicare and Medicaid programs, CareFirst Blue- Cross BlueShield reported generally flat earnings for the quarter that ended Dec. 31 and for the year.

CareFirst reported fourth-quarter earnings of $8.9 million, but that included a one-time charge of $16.6 million, net of taxes, for a computer switchover. For the fourth quarter of 1998, it had posted $32.6 million in earnings, but that included a one-time gain from the sale of a building.

Earnings for the year, including the one-time computer charge, were $68.9 million, down 9 percent from $75.7 million, including the one-time building gain, the previous year.

However, operating income, without the one-time charges and gains and without investment income, was $25.5 million in the quarter, up from $15.1 million in the year-earlier quarter. And for the year, operating income was $85.5 million, up from $68.8 million in 1998.

Membership was 2.6 million at the end of the year -- 11.2 percent above a year earlier. With membership up and with premium increases generally in the 5 percent to 7 percent range, revenue was $1.2 billion in the quarter, up 16 percent from $1.0 billion the fourth quarter of 1998. But the revenue gains were offset by medical costs, up 16.3 percent from the 1998 quarter.

CareFirst, which operates the Maryland and District of Columbia Blue Cross plans, shows relatively good results for a Blue Cross plan, with trends "pretty much in line with what's going on in the whole country," said Melissa Gannon, vice president of Weiss Ratings Inc., a Florida firm that monitors the financial soundness of insurers.

She said Weiss, using data through the second quarter of 1999, graded the Maryland plan at B for profitability and financial reserves, placing it in the upper half of Blue Cross Blue Shield plans nationally, and the D.C. plan at C.

Both are markedly improved from the early- to mid-1990s, when both plans had financial problems. Maryland carried a D grade until 1995, and D.C. dipped to E+ in 1992, and didn't reach C- until 1998.

G. Mark Chaney, executive vice president and chief financial officer, said CareFirst incurred $16 million in underwriting losses in Medicare and Medicaid. "Long term, we can't have the public sector programs sustaining losses that have to be subsidized by commercial subscribers," Chaney said.

Effective Jan. 1, CareFirst stopped offering its Medicare HMO in 17 rural Maryland counties, where the premiums paid by the federal government are lower than in urban and suburban counties. Still, Chaney said, CareFirst is concerned whether it will be able to break even on Medicare business this year.

In Medicaid, the state increased premiums late last year. Even with the higher premiums, Chaney said, CareFirst expects to lose about $4 million this year on Medicaid.

He said another premium increase will be needed next year to keep the program viable.

In commercial business, Chaney said, much of the membership increase came from CareFirst's combination of the Maryland and D.C. plans, which enabled it to compete better for national accounts.

CareFirst is also awaiting final approval of its plan to take over the Delaware Blue Cross plan. Chaney said he hoped that approval would come in the next month or so, but that adding the Delaware plans would have little impact on earnings this year.

Also, he continued, CareFirst was able to negotiate premium increases generally in the 8 percent to 10 percent range for the current year.

Membership was down slightly in HMOs, with a migration of business into point-of-service plans (which have an out-of-network benefit) and preferred provider plans (which allow members to access network physicians without going through a "gatekeeper.") Margins in these lines are similar to those in HMOs, Chaney said, but are more volatile because the insurer has less control over how much care is used.

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