CareFirst doubles earnings in quarter

Insurer expects to pass along savings to members with lower increases in '04

November 15, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

With health care inflation slowing, CareFirst BlueCross BlueShield said yesterday that its quarterly operating earnings had doubled - and that it expected to pass savings along to members in the form of smaller premium increases next year.

CareFirst, the state's largest health insurer, serves about 3.2 million members in Maryland, Delaware and the District of Columbia.

Medical costs rose about 7 percent in the three months ending Sept. 30, CareFirst said, compared with 9.6 percent growth in health costs nationally last year and 10 percent in 2001, actuarial studies show.

Last year, health insurers were warning that medical costs would be increasing at a rate in the mid-teens - and priced their policies accordingly.

"Since rates inevitably follow costs, members should begin feeling the impact of the moderating health spending that we are experiencing," William L. Jews, CareFirst's chief executive officer, said in a statement.

CareFirst declined to project prices in detail, warning that premiums can vary widely, based on type of coverage and claims history. Also, most prices are set earlier in the fall for the next calendar year, so it could take time for cost moderation to be felt.

Experts said the trends CareFirst experienced are being seen throughout the industry, and are likely to mean some moderation of premiums in the future.

Strong as nonprofit

Also, CareFirst critics said yesterday that the strong quarter showed that the insurer remains viable as a nonprofit company.

The Owings Mills-based insurer reported that its reserves are now $786 million - up 20 percent for the year.

"This disproves the argument they've been trying to make - that the company needs to be bigger and be part of another [company] to be viable," said T. Michael Preston, executive director of Medical and Chirurgical Faculty of Maryland, the state medical society.

Preston was among those opposed to CareFirst's efforts - blocked by state regulators this year - to convert the company to for-profit operation and sell it to a California insurance giant.

Jeffrey W. Valentine, a CareFirst spokesman, said, however, that in seeking the conversion and sale, "We never said we faced an immediate danger. For the next three to five years, CareFirst is poised to be a strong and successful company."

Over the longer run, however, he said, the company is concerned with having enough money to improve technology to serve customers. "Fortunately," he said, "our earnings are healthy enough that we can make these investments now."

Experts agreed yesterday that there was real moderation going on in health spending.

Some of the slowing in insurance claims reflects a shift of more expenses to patients through co-payments and deductibles, said Pete Borchardt, president of the Borchardt Group in Easton. His company does benefits consulting for large employers.

Borchardt said his clients saw premium increases in the 10 percent range this fall for premiums beginning in January, down from 12 percent a year earlier.

But that hardly means that health cost problems are solved. Even in the mid-to-high single digits, health inflation is running "way above" general inflation and wage growth, said Paul Ginsburg, a health economist who is president of the Washington think tank Center for Studying Health System Change.

"Next year is a potential year for a turn" to slower increases in premiums, Ginsburg predicted, "but I don't think it will be a sharp turn."

Other insurers have also reported a slowing of medical inflation.

Mid Atlantic Medical Services Inc. (MAMSI), the state's second-largest health insurer, with nearly 2 million members in a seven-state region, reported similar trends for the quarter. Its premium revenue was up 11.7 percent for each member, while claims for each member were up only 5.4 percent - a sharp slowing from the 9.5 percent increase experienced last year. Like CareFirst, MAMSI reported a doubling of its profits for the quarter, compared with the third quarter of last year.

CareFirst reported yesterday $54.4 million in earnings for the quarter which ended Sept. 30 - doubling the $27.1 million posted in the year-earlier quarter. Although CareFirst is a nonprofit organization, its earnings (what's left from its revenue minus its costs) are held as reserves or used for purposes such as buying new equipment.

Revenue, $1.9 billion for the quarter, was 9 percent higher than the year-earlier period, outpacing the growth in medical expenses and contributing to the higher earnings.

While CareFirst declined to make projections on future trends, MAMSI told stock analysts Nov. 6 that it expected premium increases of about 11 percent next year, with a medical trend in the 10-to-11-percent range. That reflected a moderation in costs across all major areas of health spending, as MAMSI projected increases of about 11 percent in payments to doctors, 9.5 percent to hospitals for inpatient and outpatient care, and 9 percent for prescription medications.

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