Health Plans Healing Themselves
Rising health care costs, driven by growing utilization rates and the high price of prescription drugs and medical technology, are the main drivers behind the double-digit premium increases and will remain so in the future, said Carl Siebers, vice president and regional executive in Grand Rapids for Blue Care Network.
“The premium increases are the result of a lot of what’s going on with the costs,” Siebers said. “As long as the cost trends are where they are, and they look like they’re climbing pretty aggressively, premium trends are going to have to mirror pretty closely.”
Likewise for other HMOs in the market, all of which posted revenue and profit gains in 2002.
After heavy losses that totaled $124.5 million over the four previous years, Blue Care Network, a subsidiary of Blue Cross Blue Shield of Michigan, posted its first-ever profit in 2002, a modest $10.5 million on revenues of $1.28 billion, according to an annual financial report filed with the state Office of Financial and Insurance Services.
Siebers credited Blue Care Network’s movement into the black to premium increases, including 13 percent to 16 percent hikes for 2002, and better management of operating costs that were affected in past years by the integration of four regional HMOs beginning in 1998 to form Blue Care Network. The integration was more costly than anticipated and hindered Blue Care Network’s ability to quickly and adequately respond to the escalating costs of health care.
“To be honest, as we were going through the integration, we probably didn’t catch those trends as quickly as we should have,” Siebers said.
While the 2002 profit won’t directly result in mitigating future premium increases, the significantly improved financial performance does enable Blue Care Network to become more mindful of the pressures employers face in coping with rising health care costs and the highly competitive marketplace, Siebers said.
Blue Care Network, with about 70,000 subscribers in western Michigan and nearly 519,000 in 58 counties across the state at the end of 2002, needs to strike more balance between keeping premiums in line with rising health care costs and competing in the marketplace, Siebers said.
“We know employers are looking for good deals. They’re getting squeezed badly,” he said. “We can’t be competitive if we keep giving away huge rate increases.”
Grand Rapids area employers responding to the annual Alliance for Health and The Employers’ Association survey on the cost of health plans placed Blue Care Network as the cost leader in the market.
A one-person Blue Care Network plan, as of spring 2002, cost an average of $261 per month, according to employer survey results. That compares to $209 per month for a Priority Health one-person HMO plan, as well as the monthly market average of $221.
As Blue Care Network performed better financially last year, it lost members. The HMO’s subscriber base fell to 518,946 in 2002, down from 572,422 in 2001 and more than 610,000 in 2000.
That decline is in line with the tendency of employers, in response to rising costs, to move to preferred-provider organizations that are less costly and offer more flexibility n their care networks. Siebers said many of the subscribers who left Blue Care Network went to one of Blue Cross Blue Shield of Michigan’s PPO products.
But that trend didn’t hold for everybody.
Priority Health, the local market leader, saw its HMO membership grow from 268,585 in 2001 to 288,535 in 2002 within a 27-county service area of western Michigan.
Rob Pocock, Priority Health’s vice president of marketing and corporate communications, credits the health plan’s strong reputation for quality and service, as well as its good performance in consumer satisfaction and performance surveys and analyses, with helping to push membership upward, despite similar premium increases in recent years.
“We deliver,” Pocock said. “It’s the product. It’s that history of providing value.”
Priority Health, majority owned by Spectrum Health, reported net income in 2002 of $15.7 million on revenues of $606.8 million, according to the managed care plan’s annual financial report filed with the state. That compares with 2001 net income of $13.8 million on revenues of $473.7 million.
Grand Valley Health Plan, a small Grand Rapids-based HMO with 19,413 subscribers at the end of 2002, reported net income of $390,905 on revenues of $38.9 million. Both are up from 2001, when Grand Valley Health Plan posted net income of $143,178 on total revenues of $35.9 million.
Community Care Plan, a 38,375-member Medicaid HMO owned by Metropolitan Health Corp. in Grand Rapids, reported net income of $1.2 million on revenues of $55.4 million.