CareFirst 2Q earnings fall 15%

`Moderating premiums' brings surplus `in line'

August 18, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross BlueShield earnings slipped in the second quarter from historic highs last year, according to filings by the state's largest health insurer with the Maryland Insurance Administration.

CareFirst's operating surplus - the difference between the money it collected and the amount it paid out for claims and operating expenses - was $39.7 million for the quarter that ended June 30. That's 15 percent less than the $46.9 million earned in the comparable period a year earlier.

But last year's earnings were unusually high. Last year's second-quarter earnings were up 66 percent compared with a year earlier, the second quarter of 2002, when earnings were $24.6 million. CareFirst attributed the sharp jump (and similar increases in the subsequent three quarters) to medical costs increasing more slowly than the company had projected when it set premium rates for 2003.

After a year of record earnings, "We responded by moderating premiums, which brings us back to earnings more in line with previous years," Jeffery W. Valentine, a company spokesman, said yesterday.

While last year's inflated earnings were good news for the insurer's financial position, it provided fuel to critics who said the company was behaving too much like its for-profit counterparts, and called for CareFirst to devote more money to programs to benefit the community.

CareFirst has been nonprofit since its predecessor was founded in 1937. It uses its earnings to provide reserves against future claims and to buy new equipment. The company sought to convert to for-profit operation, saying it needed more access to money, but the move was blocked last year by Maryland regulators.

Revenue for the second quarter was $1.1 billion, up about 8 percent from the year-earlier period. Medical costs, about $1 billion, grew at a slightly faster rate, just under 10 percent. That's a slight improvement from recent years, which consistently showed double-digit increases in the cost of claims.

Valentine said the deceleration in costs reflected a slowing in the use of services, not a drop in the rates charged by doctors, hospitals and pharmacies.

A slowing of medical cost growth to a high-single-digit rate is consistent with what is being reported by publicly traded health insurers, Douglas Sherlock, a senior analyst for the Sherlock Co. in Gwynedd, Pa., said yesterday.

Premium increases also have been in the high single digits, Sherlock said, but publicly traded insurers have improved earnings by reducing administrative costs.

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