Blue Cross Blue Shield of Michigan reports negative earnings for 2008 driven mostly by significant losses on individual policies
March 2, 2009
DETROIT - Blue Cross Blue Shield of Michigan today announced its consolidated financial statements for 2008 will show a net loss of $144.9 million on a GAAP basis. Michigan's broken individual health insurance regulatory system continued to seriously impair BCBSM's financial performance — as individual policies offered by the company incurred a loss of $133.2 million in 2008.
"The economy has challenged every business in Michigan," said Daniel J. Loepp, BCBSM president & CEO. "Our management team and employees are making tough decisions to help us weather the economic downturn. But for our business, the most significant challenge continues to be a broken regulatory system. It was the individual market that dragged down our financial performance — and will continue to do so until a fair and balanced system is put in place."
Investment Return a Negative 4.99%
BCBSM's return rate on its consolidated investments — one of two major sources on which the nonprofit organization relies for income to offset health insurance losses — was a negative 4.99% in 2008. By comparison, the S&P 500 index was a negative 37% for the year.
"Our conservative investment portfolio performed better than most, and our core health care business outside of the individual products earned a very small margin, consistent with our goal as a nonprofit organization," said Mark Bartlett, BCBSM executive vice president and chief financial officer.
Total health underwriting results at BCBSM and its HMO subsidiary, Blue Care Network, showed a loss of $128.1 million on a GAAP basis.
BCBSM's state-regulated reserves declined from $2.41 billion to $2.25 billion in documents filed with OFIR. As measured by the Risk Based Capital Ratio — a ratio that insurance regulators use nationally to compare a company's reserve capital to its risk exposures — the adequacy of BCBSM's state-regulated reserve capital has declined by nearly 25% in last three years.
Problems in the Individual Health Insurance Market
BCBSM individual product losses are growing, primarily due to two factors — the unregulated ability of for-profit insurers and nonprofit HMOs to reject unhealthier and costlier-to-insure applicants in the individual market and send them to BCBSM, where they are guaranteed coverage; and a cumbersome and politically charged process for setting BCBSM rates.
BCBSM actuarial models project cumulative losses on individual products could exceed $1 billion by Dec. 31, 2011.
"As we manage our business now and in the future, the broken regulatory system will continue to make it more difficult to fulfill our unique mission to protect the vulnerable and provide access to affordable health care coverage," said Bartlett.
The company's total consolidated revenue in 2008 was $21.2 billion in premiums and premium equivalents that include both fully-insured and self funded business, compared to $19.4 billion in 2007. Revenue includes income generated from insurance premiums and premium equivalents; administrative fees charged to self-insured customers; and subsidiary and investment income. Part of the company's revenue growth is attributable to growth in the Medicare Advantage and Medicare Part D products that were introduced in 2005, which accounted for $2.9 billion in 2008, an increase of $900 million from 2007.
BCBSM's annual financial statements are produced under Generally Accepted Accounting Principles (GAAP) and are independently audited by Deloitte & Touche LLP. Additionally, BCBSM also files financial statements with state regulators that are based on Statutory Accounting Principles (SAP) — a different set of accounting standards and criteria than GAAP. These statements are reviewed and audited by the Michigan Office of Financial and Insurance Regulation, and Deloitte and Touche LLP.
Blue Cross Blue Shield of Michigan is a nonprofit corporation and an independent licensee of the Blue Cross and Blue Shield Association.