CareFirst's 2nd-quarter profit $24.6 million

Medical bills escalate, are offset by growth in membership, cost trims

August 15, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross BlueShield, the area's largest health insurer, reported yesterday second-quarter profit of $24.6 million, up 11 percent from $22.2 million in the corresponding period last year.

However, medical costs escalated faster than premium revenue. Growth in membership and a reduction in the administrative costs ratio accounted for the additional earnings.

Medical bills for CareFirst's 3.2 million members came in at $1.54 billion, 14.9 percent more than in the year-earlier quarter. Revenue was $1.69 billion, up 14.3 percent.

G. Mark Chaney, executive vice president and chief financial officer, said CareFirst had attempted to predict medical costs and raise premiums by about the same amount to maintain a steady profit margin. However, with medical costs exceeding estimates, he said, profits, though slightly higher in dollars, were lower as a percentage of revenue - 1.5 percent this year compared with 1.7 percent last year.

CareFirst is a nonprofit - although it has filed for permission to convert to for-profit status - and uses its operating earnings for such purposes as acquisitions and new equipment. "The only way we have to accumulate capital is margins," Chaney said. "Margins are important."

CareFirst's slimmer margins contrast with those of the health insurance industry in general. Two for-profit publicly traded insurers based in Maryland have reported strong quarterly gains this month. Mid Atlantic Medical Services Inc. reported profit 54 percent higher than in the second quarter of last year, and Coventry Health Care Inc. posted a 79 percent gain.

In general, the industry has been increasing premiums more than medical costs, said Douglas B. Sherlock, senior analyst with Sherlock Co. in Gwynedd, Pa., which tracks industry trends. On average, he said, the medical loss ratio (care costs as a percentage of revenue) has dropped from 84.2 percent last year to 83.7 percent in the most recently reported quarter.

As a result, Sherlock said, "a number of companies have had 100 percent improvement or so in operating earnings."

CareFirst's medical loss ratio is not directly comparable, because nonprofit Blue Cross companies measure premium income differently from publicly traded companies. But it's clearly going in the opposite direction from the industry as a whole, from 90.4 percent in last year's second quarter to 90.9 percent in this year's.

Chaney said medical costs have risen rapidly lately because insurers are offering better reimbursement to doctors and hospitals and because members have been moving from tightly controlled health maintenance organizations with "gatekeeper" doctors to plans offering more open access to care.

Even within HMOs, he said, CareFirst and other insurers have managed care less aggressively. "We've all revisited how intrusive we want to be," he said.

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