Blue Cross, Blue Shield Getting Richer, Like Corporate Insurers

I've written frequently in recent weeks about the eye-popping profits the big, publicly-traded health companies have been reporting. Last year -- as the number of Americans without health insurance grew to nearly 51 million -- the five largest for-profit insurers (Aetna, CIGNA, Humana, UnitedHealth and WellPoint) had combined profits of $11.7 billion.

Health insurance dollarsBut that was so 2010.

If the profits those companies made during the first three months of this year are an indication of things to come, 2011 will more than likely be the most profitable year ever for these new darlings of Wall Street.

But lest you think only those big New York Stock Exchange-listed corporations have figured out how to make money hand over fist while their base of policyholders is shrinking, take a look at the so-called nonprofit Blue Cross and Blue Shield plans.

Don't think for a minute that the Blues are any more interested in your health and well-being than the companies that at least own up to being in business to make a hefty profit off of insuring the healthy and shunning the sick.

According to a report by Carl McDonald of Citi Investment Research and Analysis, last year was the most profitable year in history for the Blues plans, which enjoy significant tax advantages because of their claim to be nonprofit and terrific community citizens. Collectively, the Blues reported more than $5.5 billion in net income in 2010.

Not only that, but the Blues now have more than five times that amount in capital above what state regulators require. As McDonald noted in his report, maintaining such a huge reserve should make regulators think twice before approving rate increases in the future.

"Our analysis of the financial position of 33 Blue Cross plans suggests that their capital position has reached a level that's difficult for the nonprofits to justify, and if sustained, will lead to significant tension between the nonprofit Blues, regulators and consumer activists," McDonald wrote. "According to our data, the nonprofit Blues held a total of $52 billion in capital at the end of 2010, or more than $29 billion above minimum regulatory requirements."

Healthcare plan warningOne of the ways the Blues have been able to amass such fortunes is by avoiding paying for care in exactly the same way the big for-profit companies do. They are rapidly moving their policyholders into high-deductible plans and spending far less on medical care -- and far more on overhead -- than they have in the past.

How much insurance firms spend on medical care is measured by what is called the medical loss ratio.

In 1993, the average medical loss ratio in the health insurance industry was 95 percent, which meant that insurers spent 95 cents out of every dollar they collected in premiums on medical care. In their quest for profits, all insurers, regardless of their tax status, have been spending less on care in recent years. The average medical loss ratio is now closer to 80 percent.

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McDonald found that some of the Blues are spending far less than that these days. The medical loss ratio at the Texas Blues, for example, was just 64.4 percent last year.

The Big Myth: Competition Between Insurers Results in Lower Premiums

Beginning this year, as a result of the health care reform law, insurers will have to maintain medical loss ratios of at least 80 percent. Had that provision of the law been in effect in 2010, McDonald says the Texas Blues plan would have had to price its policies for individuals about 12 percent lower than it actually did.

McDonald found that some Blues are much greedier than others when it comes to making profits and building up big surpluses.

It turns out that the Blues plans that have to compete with the big for-profit companies behave, well, just like the big for-profits. In other words, the competition actually works against the interests of policyholders. The profit margins and the size of the surpluses of the Blues in states where the for-profits have a significant presence were on average considerably higher than in states where the for-profits don't have as much market share.

So much for the myth that competition among insurers results in lower premiums.

Health insurance is one part of the U.S. economy where the free market works beautifully for the insurers and a few executives (and shareholders of for-profit companies) but horribly for the rest of us.

Little Difference Between For-Profit and Non-Profit Insurers

Author Wendell Potter, former head of PR for CIGNAThe nonprofit Blues don't have to reward shareholders, but they do lavish a big chunk of their premium revenue on themselves. Take BlueCross BlueShield of Tennessee as an example.

Last year was a very good year for the Tennessee Blues. It raised premiums an average of 6.5 percent, which was enough to increase profits five-fold over 2009 and boost its reserves to almost 50 percent more than the $955 million required by the state. Its medical loss ratio for individual policyholders was only 76.7 percent.

The company has been building up the reserves for many years, but instead of giving money back to policyholders in the form of rate reductions, it has built itself a veritable palace overlooking downtown Chattanooga.

Under pressure by lawmakers and consumer advocates a few years back to reduce its surplus, BlueCross BlueShield of Tennessee decided instead to spend $300 million on a new 950,000 square-foot headquarters. The building has a scenic view of the Tennessee River and is on historic Cameron Hill, where during the Civil War the Union built a fort and fired cannons at the Confederate army.

When the company's 4,000 employees moved into their new digs in 2009, they left vacant several buildings in downtown Chattanooga. City officials now realize it will be hard to find new tenants for those buildings, but that didn't stop them from giving BlueCross an unprecedented 16-year, 50 percent tax break back in 2005. Bottom line: nonprofits can be very profitable If your nonprofit is a Blue Cross or Blue Shield plan.

Comments

Perhaps in an attempt to sell more books, Mr. Potter has played loose with the facts. Here is the real story on BlueCross BlueShield of Tennessee (BCBST): Our Profits In 2010, BCBST earned 2.5 cents from each premium dollar collected. The company made only one half of one cent in 2009. We actually pay claims. To be exact, we paid 61.9 million claims in 2010 totaling $8.7 billion for our 3 million members, who would have paid much more without the discounts we negotiate. Our Reserves Built over 65 years, our strong reserves provide the ultimate consumer protection. The 2008 financial meltdown is a real example of why we need healthy reserves. Our reserves value dropped by more than 20 percent, yet we met all obligations and remained financially strong. No bailout needed. Potter additionally calls for using our reserves to lower premiums for one year. This idea fails to recognize the real drivers of premium increases: rising costs and use of medical services. It also ignores the fact we would be forced to raise premiums the following year to catch up with two years of medical cost increases. Our Not-for-Profit Status And although not-for-profit, we paid over $240 million in local, state and federal taxes last year. Additionally our foundation and trust invested more than $7 million in organizations that benefit the health and well-being of our fellow Tennesseans. Our Medical Loss Ratio (MLR) Potter conveniently elects to exclude our small and large group 2010 MLR figures — both of which exceed requirements of the health care reform law. And although at 76.7 percent for individual policyholders, which represent about three percent of our members, we already have efforts underway to meet the requirement. Our Headquarters Building our campus in Chattanooga was a deliberate decision of our board of directors to enhance productivity and lower our operating costs. The latter by more than $4 million annually (leases, maintenance, energy, equipment, etc.). To date, only one of our former buildings has not been sold; the rest have new owners who are bringing increased tax dollars into our city.

The obscence salaries of Blue Shield CEOs show that Blue Shield earns much more than its actual costs. BS is an greedy company.... creatively finding clever ways to deny paying legitimate claims.. writing this shit into their policies. Millions go uninsured. Shame on this bastard company.

The discounts that you negotiate merely mean that you only pay the provider about 20 cents on the dollar and they accept it because it is guaranteed. Then the provider wants 100% of the insured's "share". I want to negotiate a discount like that! Those that are uninsured get no discount because you F___s take money from the insured and pay pennies on the dollar in return. The uninsured are the ones who deserve the discount. Shame on you and the providers that play this despicable game.

That is a false statement. If BCBSA "negotiated" the provider rate, they have agreed upon a payment for services rendered to the patient (you,). The provider "writes-off" any remaining balance. Your response was not an example of what that. The rest of your comment devolved into an issue you should be blaming on your provider. Being screwed by medical bills sucks.

1. What we'd like to know is how the Blues handle claims when a beneficiary is insured by another commercial insurance company, e.g., husband and wife both working for different companies and insuring each other through their individual employer-sponsored group insurance policies. 2. In the case of spousal dental insurance, we know for a fact that AETNA UNDERPAYS by subtracting the payment of the primary insurer from Aetna's (secondary insurer's) so called "approved = allowed amount" flat fee. In other words, whereas a primary insurer might approve $1,000 for a procedure, but allow (and pay) say, 50% or $500---Aetna follows-up as the secondary insurer by (under) approving say, an unrealistic $501 flat fee for the selfsame procedure...and then allowing (and "paying") 100% of its flat fee or $501. This means that the beneficiary's dentist receives $1,001 (or at least the full charge of $1,000 for the procedure, as approved by the primary insurer)...right? Wrong! At this point, Aetna then subtracts the $500 paid by the primary insurer from Aetna's $501 "approved = allowed amount", thereby paying only $1 for the procedure---this, in total disregard for the fact that the dentist has charged the original approved amount (by the primary insurer) of $1,000. The preceding leaves the "double-insured" spouse (who thought he/she would be 100% covered) with an out-of-pocket debt to the dentist of $499, i.e., $1,000 (primary insurer approved amount) - $500 (primary insurer allowed amount @50%) = $500 balance - $1 (Aetna as secondary insurer's "approved = allowed" flat fee of $501 - $500 = $1) = $499 out-of-pocket debt to the dentist who has charged the $1,000 primary insurer's approved amount! 3. We'd also like to know if the Blues are truly insurers, or whether they simply administer insurance coverage for the employers of the beneficiaries. In other words, are the companies that hire the Blues in reality self-insured? 4. Naturally, we would like to know the same thing about Aetna and the companies that hire Aetna.

First of all all the major medical insurance plans out there will soon be unaffortable, some already are. Aetnas CEO has already stated that there rates will increase in 2014 by 100%. You cant afford to pay the premiums. Even if you can the amount you will pay over the years is not worth it.There is a solution to all of this. Take a look at a company called Philadelphia Life Insurance. They have a health insurance plan that wil give you more coverage with less cost. They also tie there rate increases to Medicare and they have not had an increase in two years. Take a look at the amount of complaints that Blue Cross Blue Shield and all the rest of the big boys have against them. Its unbelievable. You wont find any complaints on Philadelphia Life.Its time to forget about these big boy ripoffs and get a plan that will work for you.

.. WE HAVE BEEN WITH BC/BS SINCE 1988, FOR OVER 15 YEARS WE HAD VERY LITTLE CLAIMS WITH THE COMPANY, BUT NOW I AM 60 MY WIFE IS 57, WE ARE IN DECLINING HEALTH FOR THE PAST FEW YEARS, THEY STARTED RAISING OUR RATES, THEY RAISED OUR RATES ALONE OVER 45% IN THE PAST 15 MONTHS! NOW WITH OUR $2,400 OUT OF POCKET PER YEAR WE NOW PAY APX $25,000.00 PER YEAR IN PREMIUMS.. WE HAVE WORKED HARD ALL OUR LIVES AND PLANED TO SOON RETIRE, BUT WE HAVE HAD TO PAY OVER $100,000.00 IN INSURANCE PREMIUMS IN THE PAST 5 YEARS, THIS HAS WIPED US OUT, TO POINT NOW THEY WE MAY LOOSE EVERYTHING WE HAVE.. BC/BS SAYS OUR RATES ARE IN LINE WITH OTHERS IN THEIR SYSTEM.. BUT SOME FRIENDS OF OURS ON ON THE SAME TYPE PLAN THEY ARE ABOUT 3 YEARS OLDER THEN WE ARE AND THEY PAY LESS THEN $10,000.00 PER YEAR! THE FACT IS THEY DO NOT WANT US ANY LONGER AND WANT US OFF THEIR ROLL, SO THEY WILL JUST KEEP RAISING THE RATES UNTIL WE HAVE TO... HOW CAN THIS BE FAIR OR JUST!