CareFirst earnings leap 78% in quarter

Profits are rolling in at nonprofit independent

Rates are well above outgo

May 29, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Continuing a yearlong run of improved margins, CareFirst BlueCross BlueShield had net earnings of $49.3 million in the first quarter of this year - up 78 percent from the $27.6 million earned in the first quarter of 2003.

It had similar jumps in earnings in the past three quarters of 2003.

In 2001, it touched off controversy in an unsuccessful effort to turn itself into a for-profit company to enable its sale to a California insurer. CareFirst said it needed to do the deal to remain financially strong in the long run. Regulators blocked the conversion, calling executive bonuses tied to the deal illegal. But the company, locked into nonprofit operation, has prospered.

Jeffery W. Valentine, director of corporate communications for the health insurer, said the reason for the increased profits was the same for the past several quarters: Premium rates were set in anticipation of escalating medical cost increases, but medical inflation has slowed.

"Rates are set essentially 18 months in advance," Valentine said. "Now, we're seeing we can be more aggressive in our planning," moderating future premium increases.

Overall, according to CareFirst's filings with state regulators, revenue rose 8 percent (to $1.2 billion) compared with the first quarter of 2003, but medical expenses grew only 5.9 percent.

Alfred W. Redmer Jr., the state insurance commissioner, said CareFirst had filed for a rate increase this year but, after tough questioning from actuaries in the insurance administration, withdrew its filing. He said he believed that the improving margins may have helped persuade CareFirst to abandon its effort to increase prices.

The improved margins at CareFirst, Redmer said, "are pretty consistent with what we've seen nationally - a moderation on the expense side."

Douglas W. Sherlock, an industry analyst with Sherlock Co. in Gwynedd, Pa., said publicly traded health insurers reported an average margin improvement of 41.7 percent in the first quarter, when compared with the year-earlier quarter.

CareFirst as a nonprofit uses its earnings (what's left from its revenue minus its costs) as reserves or for purposes such as buying new equipment. Valentine said the deceleration in health costs resulted not from a drop in the prescriptions or hospital bills CareFirst pays but from members not increasing their use of services as much as in the past. Some analysts believe that the loosening of HMO controls led to a surge in use of services over the past few years, but that use has leveled off as the pent-up demand has been met.

Also contributing to the moderation in costs, he said, were CareFirst's efforts to provide continuing care and advice to people with chronic diseases such as diabetes, or with complex and expensive diseases such as cancer. Valentine said 15 percent of CareFirst's membership is incurring 85 percent of the medical bills.

Overall, he said, efforts to better manage those patients saved more than $50 million last year.

Although CareFirst has reported its earnings quarterly in the past, it didn't issue a public statement for the just-ended quarter, although the earnings were reported, as required, to insurance regulators.

Valentine said CareFirst had stopped its public quarterly reporting of finances to be more like its nonprofit peers.

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