Insurer reports $92.4 million in '01 net income

But CareFirst says most of earnings rise came from investments

March 01, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross Blue- Shield reported $92.4 million in net income yesterday from continuing operations for 2001 - up 7.4 percent from $86.1 million posted in 2000.

Despite the boost, the report showed a mixed picture:

Basic insurance business was essentially flat, the company said, with most of the increase in earnings coming from investments.

CareFirst lost $18.7 million on its Medicare and Medicaid programs in 2000, and dropped those lines of business, forcing tens of thousands of Marylanders to find other coverage. Now discontinued operations, those losses had been excluded from totals announced yesterday. Including the Medicare and Medicaid losses, CareFirst earnings in 2000 were $71.5 million.

The company essentially broke even in Maryland, but continued to post healthy margins on its District of Columbia and Delaware business.

G. Mark Chaney, executive vice president and chief financial officer, said the results, particularly the near-zero margin in Maryland, support CareFirst's case for a business plan now being reviewed by regulators. CareFirst is seeking to convert to for-profit operation and sell itself to WellPoint Health Networks Inc., a California Blue Cross operator, for $1.3 billion.

"It shows we're in an industry that continues to get more competitive, not less competitive," Chaney said. "Our ability to compete would be enhanced by affiliation with a company like WellPoint."

Carl J. Schramm, a health economist and author of a recent study for the Abell Foundation that concluded there was no business need for the consolidation, said CareFirst was seeking to bolster the case for its sale plan.

"They are taking pains to point out they cannot make money in Maryland with an eye toward scaring the legislature into approving the sale," he said.

"What they are basically saying is, `We don't know how to manage the mother ship plan; maybe outsiders do.' "

CareFirst lost $19.3 million on its Maryland commercial HMO operations, but made a $28.4 million profit from its other health insurance lines in the state. Still, the $9.2 million in Maryland earnings was dwarfed by $66.3 million from D.C. and $16.9 million from Delaware, both much smaller plans.

Chaney said CareFirst is working to shut its losing FreeState and Delmarva HMOs in Maryland, moving customers into its BlueChoice HMO, an expansion of the old, and profitable, Capital Care plan from D.C. As of the end of the year, FreeState membership was down to 120,000, from 213,000 a year earlier, so Chaney said losses should be considerably smaller this year.

He said BlueChoice was using newer methods of pricing policies by age and medical history. The D.C. HMO operations posted $16.0 million in earnings for the year, down slightly from $16.9 million in 2000. The slight decline in D.C. profitability, he said, was caused by medical costs rising faster than projected.

Revenue for CareFirst was just under $6 billion, up 19.5 percent from just under $5 billion in the previous year. That reflected a 3.0 percent increase in membership, to 3.1 million, and premium increases that Chaney said were averaging "in the mid-teens."

However, he continued, medical cost trends were rising at about the same rate as premiums. Overall, CareFirst spent $5.4 billion on claims in 2001, up 20.1 percent from $4.5 billion in 2000.

While it reported full-year financial results with the adjustment for discontinued Medicare and Medicaid business, it said results for the fourth quarter alone were not available, so the results are not directly comparable to reports of previous quarters.

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