CareFirst profit up 31% after dropping 2 HMOs

Large health insurer quit money-losing Medicare, Medicaid

CareFirst BlueCross Blue- Shield, the state's largest health insurer, reported yesterday that profit in its second quarter jumped 31.9 percent, an improvement it credited largely to its exit from the Medicare and Medicaid HMO business.

The insurer said its operating profit for the three months that ended June 30 was $22.2 million, compared with $16.8 million in the second quarter of 2000. Its Medicare and Medicaid HMOs together accounted for $3.8 million in losses during last year's second quarter.

Apart from Medicare and Medicaid, CareFirst's profit improved about 7.5 percent over the year-earlier period, said G. Mark Chaney, executive vice president and chief financial officer. "On our commercial business, it was a nice solid performance, quarter over quarter," he said. "We're generally pleased."

However, Chaney said, with an operating margin of only 1.66 percent, CareFirst is concerned about recent hospital rate increases and other trends that are accelerating medical cost inflation. He said CareFirst was expecting increases in health costs at a percentage rate "in the low- to mid-teens."

In general, health insurers are experiencing cost increases toward the lower end of the range projected by Chaney, and averaging margins of about 2.5 percent, up from 1.8 percent a year ago, said Douglas Sherlock, senior analyst for Sherlock Co., which follows the performance of Blues plans and publicly traded health plans.

CareFirst reported revenue for the quarter at $1.48 billion, up 10.2 percent from $1.34 billion in the second quarter of 2000. Chaney said that was largely a reflection of increases in premiums.

In general, Sherlock said, insurers have been getting "double-digit" increases in premiums, covering the increase in medical costs and allowing for some improvement in profit margin.

Membership, at about 2.9 million, was flat, with a 4.4 percent gain in commercial enrollment canceled out by the loss of Medicare and Medicaid members.

The higher premiums helped narrow the losses in CareFirst's Maryland HMOs, FreeState and Delmarva. They lost $4.6 million for the quarter, compared with $7.1 million in the year-earlier period.

CareFirst is proceeding with plans to merge FreeState and Delmarva into its profitable Capital Care HMO, with the new product to be called CareFirst BlueChoice. The company expects to begin marketing Capital Care under the BlueChoice name in the next few weeks. The full merger of HMOs requires regulatory approval.

Chaney also said CareFirst was pleased with the performance of its Delaware Blue Cross plan, which posted $3.1 million in earnings for the second quarter, compared with a break-even quarter a year earlier. Delaware membership, about 252,000, is up 18.3 percent.