Blue Cross Blue Shield of Michigan posts small positive income gain in 2011

Investment earnings make up for health insurance underwriting losses; UAW-represented workers expected to receive bonuses for first time

March 2, 2012

DETROIT — Thanks to strong returns on its investment portfolio and its success in slowing the growth of health care costs in Michigan, Blue Cross Blue Shield of Michigan filed year-end financial results for 2011 that report a positive financial margin of less than 1 percent on a statutory accounting basis, the method of accounting required by state regulators.

"We are doing what our stakeholders expect, which is to run a successful, nonprofit health insurance business," said Daniel J. Loepp, BCBSM president and CEO. "Blue Cross is posting small margins while maximizing our investment returns to take pressure off health insurance premiums. We are providing industry-leading wellness products and collaborations with physicians and hospitals that are enhancing the value of health care and bending the cost trend in the right direction."

In 2011, BCBSM put forward its lowest statewide average rate increases for group customers in six years. The company also posted its first membership gain since 2008 – an increase of 61,846 Michigan members to a total of 4,414,620 thanks in large measure to Blue Care Network's gain of more than 46,000 new members. The company also saw its medical costs grow more slowly than national benchmarks for the sixth straight year.

"Michigan businesses are responding to Blue Cross' efforts to provide them with more choices in health insurance products and more affordable pricing," Loepp said. "We are lowering costs by working with doctors and hospitals to create better, more efficient systems of health care. In fact, these efforts benefit everyone in Michigan, not just Blue Cross customers."

Because of the company's strong overall performance against annual goals established by its Board of Directors, Loepp also expects that performance bonuses will be paid to all eligible employees – including for the first time, the company's UAW-represented workforce.

Revenues, claims expenses and income

  • On a consolidated basis that includes BCBSM and all of its subsidiary companies, revenues totaled $20.4 billion, up from $19.2 billion in 2010. BCBSM and its subsidiary companies paid $18.2 billion – 90 percent of total revenue – to fund benefits behalf of customers and members.
  • The company posted a positive net income of $40 million in 2011 – equal to a financial margin of less than 1 percent.

Reserves stable as Risk Based Capital decreases slightly

  • Risk Based Capital (RBC), the state's measure of BCBSM's financial stability, decreased by 25 points year-over-year – to 673 percent RBC in 2011. BCBSM remains well below its state-imposed reserve maximum of 1,000 percent RBC.

Investment performance better than anticipated

  • BCBSM once again outperformed national benchmarks when managing its investments, achieving rates of return averaging just over 6 percent. Net investment earnings on a SAP basis in 2011 were $199.3 million, which included net investment income of $163.5 million and net realized capital gains of $35.8 million.

Underwriting losses remain, but improve year-over-year

  • BCBSM experienced a health insurance underwriting loss of $48.8 million in 2011, compared to a $73 million loss in 2010. The improved underwriting was due to premiums in 2011 that were better aligned with benefit costs and the successful launch of new products.

Bending the cost trend and beating national benchmarks

  • BCBSM's 2011 medical trend growth was lower than the national average and was at – or better than – industry benchmarks for the sixth straight year as tracked by the Milliman Health Care Cost Index and the Blue Cross Blue Shield Association. BCBSM attributes its success to collaborative work with doctors and hospitals and products that incentivize wellness – including Healthy Blue Living, which celebrated its 5-year anniversary in 2011. BCBSM remains in the top quartile of Blue plans for success in managing benefit costs.
  • BCBSM's Value Partnerships initiatives, which seek to improve health care quality while reducing waste and errors, continued expanding in 2011 and producing outcomes in the management of treatment for chronic conditions. In particular, BCBSM grew its Patient-Centered Medical Home program from 1,200 physicians in 2009 to more than 2,500 physicians in 2011. That program is the largest of its kind in the nation.

Successful products win customers

  • BCBSM's new product, Simply Blue, yielded the strongest membership gain in a new product since the launch of Community Blue PPO – garnering more than 134,000 members.
  • Blue Care Network reached a record-breaking membership of 696,244 – an increase of more than 46,000 people enrolled in the HMO.
  • During 2011 BCBSM experienced membership growth for the first time since 2008. BCBSM gained 61,846 members in 2011 or 1.4 percent, driven by new business growth and higher retention of existing business. Total combined membership of BCBSM and BCN went from 4,352,774 in 2010 to 4,414,620 Michigan members in 2011. 

Spending to prepare for health care reform

  • BCBSM continues to prepare for health care reform, which includes building capability to operate in a new marketplace, retooling systems to deliver new products that are different from existing ones, and changes in infrastructure to address new regulations and compliance requirements. These preparations drove overall administrative costs higher in 2011 – although the company continues to successfully manage its segment-level administrative costs which has led to more competitive product pricing in the group market. 

Blue Cross Blue Shield of Michigan and Blue Care Network are nonprofit corporations and independent licensees of the Blue Cross and Blue Shield Association. For more news and information go to our newsroom.

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