One of the largest Blue Cross insurers in the American South has taken its first loss in 15 years, showing the challenges of the two main growth areas, ACA plans and Medicare Advantage.
Blue Cross and Blue Shield of North Carolina ended 2014 with a net loss of $50.6 million, amid higher medical costs of new Affordable Care Act customers and "poor performance in Medicare Advantage products." That's down from a net income of $92 million in 2013.
"We are working in a volatile environment with high risk," said Gerald Petkau, senior vice president and chief financial officer. "While disappointing, this year's results are not surprising given the trends we observed throughout the year."
Despite a medical cost ratio up a full percentage point to 87 percent, BCBSNC is "well capitalized and well positioned for the future," with reserves equal to 3.6 months of claims and expenses, Petkau said. "Having adequate reserves means we are well-positioned to weather this difficult year." BCBSNC hasn't taken a loss since 1999.
In 2014, the company earned revenue of $8 billion, up 25 percent from $6.4 billion the year before, and saw membership rise by 70,000, to 3.9 million.
Claims and healthcare expenses increased by 28 percent to $6.4 billion, driven by utilization particularly in orthopedics, cardiology procedures and cancer treatment, as well as specialty pharmaceuticals, an area where spending increased 12 percent.
Members in ACA plans--representing 31 percent of BCBSNC's fully-insured individual membership--brought a particular surge in healthcare spending, as the company expected, Petkau said.
The ACA population incurred medical costs of $435 per member per month compared to $256 per member per month in non-ACA individual plans. The insurer's ACA plan members used orthopedics at more than double the rate of other individual fully insured members and also used the emergency room and specialty drugs at higher rates.
Medicare Advantage members also brought high claims. That, combined with "changes to the way Medicare reimburses insurers," led to a loss for the MA plan line as a whole, the company said. "BCBSNC restructured its Medicare plan offerings and the cost of these plans last year to ensure the sustainability of these products."
While the company still has strong reserves, within the 3-6 month range set by state law, the 3.6 months of claims and expense is down from reserves of 4.9 months in 2013. The company also paid $266 million in local, state and federal taxes in fees last year--more than double what it paid the year before.
Even with last year's issues, BCBSNC is on track to maintain its place as the state's insurer of choice, with some 70 percent market share, and help shape the new consumer-driven healthcare market.
"Our 2014 results reflect a year of unprecedented change," said Petkau. "We are making investments in systems and technology that will bring new efficiencies to manage healthcare costs. These investments will provide long term benefits for our customers."