Blue Cross Blue Shield of Michigan reports negative earnings for 2008
Blue Cross Blue Shield of Michigan reported a net loss of $144.9 million in 2008, which company officials blamed primarily on significant losses on individual policies.
Daniel Loepp, BCBSM's president and CEO, said Michigan's "broken individual health insurance regulatory system" has seriously impaired the health insurer's financial performance. He said individual policies offered by the company incurred a loss of $133.2 million last year.
"The economy has challenged every business in Michigan," said Loepp. "Our management team and employees are making tough decisions to help us weather the economic downturn. But for our business, it was the individual market that dragged down our financial performance – and will continue to do so until a fair and balanced system is put in place."
BCBSM's return rate on its consolidated investments – one of two major sources on which the nonprofit organization relies for income to offset health insurance losses – was a negative 4.99 percent in 2008.
By comparison, the S&P 500 index was a negative 37 percent for the year.
"Our conservative investment portfolio performed better than most, and our core healthcare business outside of the individual products earned a very small margin, consistent with our goal as a nonprofit organization," said Mark Bartlett, BCBSM's executive vice president and chief financial officer.
Bartlett said total health underwriting results at BCBSM and its HMO subsidiary, the Blue Care Network, showed a loss of $128.1 million on a GAAP basis.
BCBSM's state-regulated reserves declined from $2.41 billion to $2.25 billion. As measured by the Risk Based Capital Ratio – a ratio that insurance regulators use nationally to compare a company's reserve capital to its risk exposures – the adequacy of BCBSM's state-regulated reserve capital has declined by nearly 25 percent in the last three years.
According to Bartlett, BCBSM's individual product losses are growing primarily due to two factors – the ability of for-profit insurers and nonprofit HMOs to reject unhealthy and expensive-to-insure applicants in the individual market and send them to BCBSM, where they are guaranteed coverage; and what he termed a "cumbersome and politically charged process" for setting BCBSM rates.
Bartlett said BCBSM's actuarial models project that cumulative losses on individual products could exceed $1 billion by Dec. 31, 2011.
"The broken regulatory system will continue to make it more difficult to fulfill our mission to provide access to affordable healthcare coverage," he said.
The company's total consolidated revenue in 2008 was $21.2 billion in premiums and premium equivalents that include both fully insured and self-funded business, compared to $19.4 billion in 2007. Bartlett said part of the company's revenue growth is attributable to growth in the Medicare Advantage and Medicare Part D products that were introduced in 2005, which accounted for $2.9 billion in 2008, an increase of $900 million from 2007.
