Reduced Costs Slow Blues Rate Hikes

March 5, 2004
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Improved finances has Blue Cross Blue Shield of Michigan forecasting smaller — albeit still sizable — premium increases for employer health plans through 2004 and planning upgrades in claims and payment systems.

On the back of reduced administrative costs and lower-than-expected medical costs, Blue Cross Blue Shield of Michigan more than doubled its earnings for 2003 over the previous year.

That allowed the Blues to add $367.7 million to its subscriber reserves in 2003, pushing the fund to $1.9 billion — a level that provides Chief Financial Officer Mark Bartlett greater comfort and resulted in an easing of the steep, double-digit premium increases of recent years.

“There will be less pressure for rate increases,” Bartlett said. “Lower medical trends are being reflected in lower premium increases.”

Blues policyholders in the small group market in western Michigan saw an average 12.4 percent increase in their health premiums for 2004. Statewide, Blues subscribers renewing their policies at the start of the year experienced an average 11.4 percent increase for next year — about half that of 2003.

Employers renewing Blues plans in the second quarter of 2004 experienced a statewide average 9.3 percent premium increase — the smallest since 1998.

Those increases are “typical of what people will get” at least through 2004, Bartlett said. Beyond this year, far larger premium increases could return if medical inflation and spending, which recent research reports indicate has been growing at a decreased rate, accelerate again.

The $367.7 million the Blues steered to the reserves came on revenue of $13.7 billion. That 2003 financial performance compares with the $161.4 million that went to subscriber reserves in 2002, when the Blues took in $12.6 billion in revenue.

Even with the significant financial improvement, Bartlett says the nonprofit insurer’s capitalization remains below the average of 20 other Blues plans nationwide. Yet the subscriber reserves are high enough that the Blues can begin directing more money to upgrading how it interacts with physicians, hospitals and other care providers.

That includes areas such as upgrading systems to improve the timeliness of payments to care providers and electronic claims filing. They are problematic areas the Blues has wanted to address for some time, spokeswomen Helen Stojic said.

“It’s a common tension out there,” Stojic said. “We’ve always wanted to increase the ease of doing business with us.”

The largest health plan in the state, Blue Cross Blue Shield of Michigan provides health-care benefits to 4.8 million subscribers. The Blues processes some 100 million claims annually.

Now in the planning stages, the upgrades will require multi-year investments by the Blues, although Bartlett could not say how much of an investment they will require or how long it will take. If the Blues’ finances continue their present trend, he sees upgrades continuing for some time.

“The nature of the project is so dynamic, it doesn’t ever really go away,” Bartlett said. “It doesn’t have a definitive end point.”

Like the easing of premium increases, the big question for the future is medical spending and medical inflation, he said. Every percentage point increase in medical costs represents $60 million in expenditures to the Blues, Bartlett said.

And, adds Stojic, “One year does not a trend make.”

Nationally, health-care spending growth slowed in 2003 to 7.8 percent, according to a recent report from the federal Center for Medicare and Medicaid Services. That compares with a 9.3 percent growth rate in 2002 and represented the first slowdown in spending growth after six straight years of acceleration.

Helping the Blues post improved finances for 2003 was $62.9 million in savings incurred through internal administrative cuts; a collective $42.9 million profit through for-profit subsidiaries PPOM, Accident Fund Insurance Co. of America and DenteMax; and investment income of $167.9 million.

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