CareFirst profit dips for quarter

Six-month earnings rise

insurer held down premiums in '05


With last year's price moderation continuing to have an impact, CareFirst BlueCross BlueShield is showing profitability this year comparable with 2005, according to company officials and filings with the Maryland Insurance Administration.

For the quarter that ended June 30, CareFirst posted net earnings of $27.9 million, down from $35.3 million in the second quarter of 2005. While earnings were down in the quarter, for the first six months of the year, CareFirst earnings are up - to $76.7 million, compared with $65.9 million last year.

The entire difference was accounted for by $12.5 million in one-time payments related to settlements of old financial questions, most over the application of discounts for CareFirst's program for federal employees.

In general, health insurers have been showing "very slight margin expansion" this year, said Thomas A. Carroll, a health analyst at Stifel, Nicolaus & Co. Inc. in Baltimore. "Pricing continues to be very competitive, but in a rational sense," he said, with most insurers increasing premiums at or slightly above expected medical inflation.

CareFirst, however, departs somewhat from overall trends. The company is a nonprofit, although it has to generate earnings from operations to provide reserves and pay for equipment and product development. Under pressure from state officials for behaving too much like its for-profit competitors, the company announced it would cut $60 million from its profit targets last year so it could hold down premiums on some products.

This year, CareFirst is returning to price increases in line with medical inflation.

However, last year's actions are continuing to affect revenue and earnings figures this year, Jeffery W. Valentine, a CareFirst spokesman, said yesterday.

Because employers renew their contracts with CareFirst throughout the year, some didn't benefit from the price moderation until late last year (minimizing the impact on last year's bottom line). But Valentine explained that some are still paying 2005 rates until their renewal this year (causing continued decline in margins).

For the year, Valentine said, CareFirst's board and management have set a goal of a profit margin between 2 and 2.5 percent, roughly in line with last year's 2.3 percent.

The margin for the first half was 2.7 percent. For-profit insurers have been reporting margins between 3 percent and 8 percent, according to Carroll, the Stifel analyst.

Over the second half of the year, more employers will begin paying CareFirst's 2006 premium rates, pushing up revenue. Also being phased in as contracts renew is CareFirst's collection of a state tax on HMO premiums - an average of about $60 per year on 345,000 Maryland HMO members. CareFirst absorbed the tax when it was first extended to HMOs in 2005 (it has applied to other health insurance premiums for years). This year, CareFirst elected not to continue last year's savings on the tax.

For the second quarter, CareFirst's revenue was $1.4 billion, compared with $1.3 billion in the year-earlier quarter. Medical claims paid totaled $1.25 billion, up from $1.1 billion.

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