Friday, March 24, 2006

Tell Me Again Why The Insurance Industry Can't Cover Children With Autism?

S.C. BlueCross nearing $1 billion surplus

Strong showing by company’s subsidaries led to last year’s growth

BlueCross BlueShield of South Carolina’s surplus is approaching $1 billion on strong performance last year by its subsidiaries.
Nearly all of last year’s surplus growth — about $94 million or 11 percent above 2004 — was driven by many of the company’s subsidiaries, said Bob Leichtle, chief financial officer of BlueCross BlueShield of South Carolina.
In contrast, Leichtle said, premiums paid by members last year increased from 6 percent to 15 percent. Membership growth was anemic — 1.2 percent.
The company’s administrative expenses last year jumped 60 percent to $99 million, compared with $62 million in 2004.
Leichtle said the company paid for some expensive computer upgrades and a $15 million data center to help land more government contracts.
BlueCross provides health coverage to one out of every two insured South Carolina residents. The company, which employs 10,000 statewide and 6,000 in the Midlands, also runs about two dozen other health-industry businesses.
These subsidiaries are hired to do such tasks as running Medicare and other federal insurance program call centers, claims processing and providing technical support.
Earlier this week, for instance, subsidiary Companion Data Services was one of three companies awarded a share of a $1.9 billion Medicare contract — thanks in part to the newly built $15 million data center.
Overall, BlueCross reported revenues of $1.4 billion in 2005, a 14 percent increase from the $1.2 billion revenue reported a year earlier.
Yet the company’s income dropped by 12 percent in 2005, to $79 million, from the $90 million reported in 2004.
This came when several competitors, such as Cigna HealthCare and Carolina Care Plan reported modest incomes for the year.
Cigna finished the year with $2.9 million income in 2005, compared with a $2 million loss in 2004. Carolina Care reported $688,000 income for the year, compared with a $1.7 million loss in 2004.
BlueCross was hit by four large contract losses in 2005, Leichtle said. That cut into membership growth and, with the increased expenses, explains why income dropped.
The surplus is something the company is intent on keeping strong, though, because of past experiences, Leichtle said.
At one point, nearly 20 years ago, the company’s surplus dropped so low, it would only have covered expenses for a month.
That is too much risk, he said, considering how after Hurricane Katrina hit Louisiana, that state’s insurance regulators loosened the required time customers had to pay insurance premiums.
That created a situation in which insurers started paying claims, but were potentially not receiving premiums for a few months.
This is why South Carolina requires insurers to maintain a surplus. According to a complicated state formula, BlueCross BlueShield has to keep between $200 million and $250 million in reserve.
Leichtle said the national BlueCross plans have even more stringent surplus requirements. According to the national plans, the South Carolina insurer has to have more than $500 million surplus.
“If you don’t meet all their requirements, they’ll come in and lift that cross and shield,” Leichtle said, referring to the company’s trademark.
Reach Werner at (803) 771-8509.


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