Blue Cross cites health care law in 2014 losses
Posted February 27, 2015
Chapel Hill, N.C. — Blue Cross Blue Shield of North Carolina on Friday reported a $50.6 million loss in 2014, which the insurer blamed on higher medical costs and changing rules under the Affordable Care Act.
“We are working in a volatile environment with high risk. While disappointing, this year’s results are not surprising given the trends we observed throughout the year,” Gerald Petkau, senior vice president and chief financial officer, said in a statement. “Having adequate reserves means we are well positioned to weather this difficult year. The company is strong, well capitalized and well positioned for the future.”
Blue Cross' annual revenue rose 25 percent, from $6.4 billion in 2013 to $8 billion, and it added about 70,000 customers to its rolls as the Affordable Care Act's requirement that most Americans have health coverage took effect. But the company's profit margin dropped from 1.4 percent in 2013, when Blue Cross earned $92.6 million, to -0.6 percent.
Claims and medical expenses jumped 28 percent, from $5 billion to $6.4 billion, led by orthopedics, cardiology procedures and cancer treatment, the company said. Spending on specialty pharmaceuticals also increased more than 12 percent.
Costs from newly enrolled Affordable Care Act members contributed to increased medical expense trends, the company said. ACA members comprise 31 percent of Blue Cross' individual membership, and they averaged $435 in medical costs per month, compared with an average of $256 per month for members who didn't enroll through HealthCare.gov. ACA members were high users of emergency room procedures and specialty drugs, such as those to treat hepatitis C, according to Blue Cross.
Blue Cross also lost money in its Medicare Advantage business last year because of increased medical claims and in changes to the way Medicare reimburses insurers. The company said it has restructured its Medicare plan offerings and the cost of the plans to ensure their sustainability.
“Our 2014 results reflect a year of unprecedented change. Despite the negative results, our reserves have kept us strong,” Petkau said. “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.”
The insurer's reserves in 2014 amounted to 3.6 months of claims and administrative expenses, down from 4.9 months in 2013. State law requires insurance companies to maintain reserves equal to three to six months of claims and expenses.
Blue Cross paid $266.7 million in federal, state and local taxes last year, more than double the $118.3 million paid in 2013.
Blue Cross reported in a separate filing with the state Department of Insurance that six executives made $1 million or more in compensation last year, led by President and Chief Executive Brad Wilson at $2.83 million. Wilson earned a $1.8 million bonus last year on top of his $947,862 salary, but his total compensation was down 4.5 percent from 2013.
Five other company executives also earned more than $1 million in salary and bonus last year:
- Executive Vice President Maureen O'Connor at $1.51 million
- Petkau at $1.48 million
- Chief Operating Officer Alan Hughes at $1.19 million
- Chief Sales and Marketing Officer John Roos at $1.17 million
- Former Chief Medical Officer Don Bradley at $1.16 million.
Overall, the compensation for Blue Cross' top 10 executives dropped by almost 3 percent from 2013.