Health insurer '06 net up 30%

CareFirst's income was $142 million as revenue rose faster than costs

March 21, 2007|By M. William Salganik | M. William Salganik,Sun reporter

CareFirst BlueCross BlueShield posted net income of $142.0 million last year, about 30 percent more than it earned in 2005.

Two major factors accounted for the improvement, Jeffery W. Valentine, a CareFirst spokesman, said yesterday - a change in pricing strategy and one-time payments this year of $12.5 million

CareFirst deliberately shaved profits in 2005 - by about 30 percent - to hold down some of its premium rates, a step it didn't repeat in 2006. That didn't mean premiums went down in 2005, but, on average, premiums increased less than medical costs did. The move came after legislators, angered with CareFirst's efforts to convert to for-profit status, replaced board members and directed the insurer to remain true to its nonprofit mission.

In another reaction to pressure to act less like a for-profit company, CareFirst in 2005 began a series of grants to health clinics and other community organizations. Those continued in 2006.

For 2006, Valentine said, CareFirst aimed for premium increases equal to those of medical costs, but those costs increased somewhat more slowly than expected, fattening the profit margin. "What you're seeing is that care cost trends are sliding somewhat more than we projected a year ago," Valentine said yesterday.

For the year, CareFirst's premium revenue increased 7 percent, reflecting membership increases as well as premium rises while the cost of medical claims increased 5.7 percent. In 2005, premium revenue climbed 11.8 percent, but medical costs grew even faster, at 13.6 percent.

Medical inflation has slowed nationally, although it continues at a much higher rate than general inflation. Valentine also said the moderation for CareFirst reflected "positive impacts from care management, disease management and health promotion" - programs by the insurer to keep people healthier and manage chronic conditions.

The $12.5 million in one-time payments came from settlements with government agencies involving pricing in previous years, principally for the coverage CareFirst provides to federal employees.

Going forward, Valentine said, "The board has set a goal of trying to play a role in keeping as many people as possible insured." He said the insurer would aim for earnings of between 2 percent and 3 percent of revenue. In 2006, that figure was 2.7 percent, up from 2.3 percent a year earlier.

"That, any way you look at it, is a low profit margin," said Douglas B. Sherlock, of Sherlock Co., a Pennsylvania consulting firm that advises health insurers and investors. For 2005, the most recent figures available, Blues plans had a median margin of 3.6 percent, Sherlock said.

For-profit commercial insurers average around 8 percent as a profit margin, but there are some differences in accounting methods used, so the figures aren't directly comparable, Sherlock cautioned.

CareFirst's revenue for 2006 was $5.3 billion, up 7 percent from $4.9 billion in 2005.

The 2005 figures Valentine released yesterday were adjusted to back out results from Blue Cross and Blue Shield of Delaware, which was part of CareFirst but then split off. CareFirst and the Delaware Blues still perform administrative work for each other. For example, CareFirst does Delaware's payroll. Delaware used to account for about 7 percent of CareFirst's business.

Membership in CareFirst's remaining territory - Maryland, the District of Columbia and Northern Virginia - stood at 3.1 million at the end of 2006, up 2 percent from the previous year.

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