Priority Health, BCN cutting expenses

December 22, 2008
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Priority Health’s Health Maintenance Organization posted net income of $6.2 million through the third quarter, making a move into positive territory after a net loss during the first six months of 2008.

Although net income turned positive in the current statement, it stands in contrast to a $25.9 million net income report through 2007’s third quarter, according to financial statements filed with the Michigan Office of Financial and Insurance Regulation. 

“If you look at some of the numbers through the second quarter, it was a negative $2.5 million,” said Priority Health CFO Greg Hawkins. “That improvement is reflective of some cost controls we implemented with respect to administrative costs.”

Administrative expenses were cut from $79.8 million through three quarters of 2007 to $77 million year-to-date this year.

“We are not unlike many of the companies in Grand Rapids and Michigan. We need to be careful of how we spend our money,” Hawkins said. “It translates into more reasonable premiums for our employers.”

Net underwriting loss for the first nine months of 2008 was $4.4 million, but the loss had been approaching $9.5 million during the first six months.

Total revenue for the first nine months slipped below the $1 billion mark that was recorded year-to-date in 2007, to $941.8 million for the current year.

HMO membership stood at 358,088, a slight uptick from the end of June. Priority Health is majority-owned by Spectrum Health, and both are nonprofits.

Priority Health’s major competitor, Blue Care Network of Michigan, has seen about a 10 percent slide in membership since the end of last year, to 561,957, a slight decline since June 30. CFO Sue Kluge blamed the economy, adding that some 60,000 former BCN members have moved into a self-funded program that is not reflected in the financial statements.

The subsidiary of the nonprofit Blue Cross Blue Shield of Michigan has experienced a dip in total revenues this year, but net income remains up by $2 million over last year at $37.9 million.

“Even though the economy is weak, we’ve been relatively stable with our membership. We’ve been able to hold our own,” said Kluge, adding that some customers with headquarters outside of Michigan have opted for multi-state commercial carriers.

BCN posted administrative expenses of $127.6 million, down from $142 million a year ago.

Despite having fewer members, hospital and medical costs trended up for Grand Valley Health Plan, based in Grand Rapids, the state’s only staff-model HMO. That contributed to an overall underwriting loss of $2.2 million through the first three quarters and to a net income in the red by $843,863.

GVHP President & CEO Ron Palmer said medical costs are up thanks to more stress-related illness and to people putting off elective procedures and even regular health care to save money in the uncertain economy.

“They’re waiting till it really becomes more problematic and then coming at a higher cost, more intensity, sicker people,” Palmer said.

GVHP has lost about 1,000 members since the end of 2007, bringing membership down to 6,825. GVHP is relying on other lines of business, such as its surgical center and a technology arm, to keep cash flowing, he added.

Meanwhile, Priority Health Government Programs, which covers 53,751 people in 10 counties with Medicaid services, continued on a positive financial course, posting net income of $3.5 million through the third quarter, compared to $246,965 through three quarters in 2007. Total revenues expanded from $79.7 million year-to-date in 2007 to $95.6 million so far in 2008. A net underwriting gain of $2.9 million helped to offset lower net investment gains.

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