Blue Cross reports modest gains

Staff writerMarch 1, 2012 

Blue Cross and Blue Shield of North Carolina enjoyed modest gains in revenue and net income in 2011 while reporting progress on its efforts to cut administrative costs.

The state's largest insurer reported net income for the year rose 2.3 percent to $177.1 million.

Revenue rose about 6 percent to $5.5 billion, but would have been less than 3 percent if you exclude $156 million in premiums it refunded in 2010 under an agreement with the N.C. Department of Insurance, said Gerald Petkau, chief financial officer of the Chapel Hill-based insurer.

Blue Cross's "stable finances" enabled it to invest in innovative programs last year, Petkau said. They included: teaming up with Allscripts to help more than 750 doctors and 39 free clinics switch to electronic medical records; creating Carolina Advanced Health, a joint venture with UNC Health Care System that is testing a new way of serving chronically ill patients; and revamping its technology in conjunction with Blue Cross and Blue Shield of Kansas City.

The insurer's cost-cutting efforts also freed up more money for investments designed to prepare the insurer for national health care reform, Petkau said.

Last year Blue Cross eliminated more than $50 million in expenses -- exceeding its target. Still, overall expenses rose slightly to more than $1 billion because of new investments.

In 2010 Blue Cross set a goal carving out about $200 million in administrative costs by 2014. Cost-cutting efforts last year included eliminating the bulk of open positions and selling a complex of seven buildings that it vacated to UNC Health Care.

Last year Blue Cross posted a profit margin of 3.2 percent, unchanged from 2010. The not-for-profit insurer distributed a chart to the media showing that its profit margin was lower that its for-profit competitors, which ranged from a low of 3.9 percent to a high of 6.7 percent.

One of the advantages of being a not-for-profit, Petkau said, is that Blue Cross doesn't have to live up to Wall Street expectations.

The number of Blue Cross members dropped to $3.6 million from $3.7 million in 2010. However, the membership rolls would have risen slightly if not for 144,000 children in the N.C. Health Choice program, the state version of the national Children's Health Insurance Program, that is no longer administered by Blue Cross.

Blue Cross also disclosed today that the compensation package for many executives, including CEO Brad Wilson, fell due to lower bonuses.

Wilson's total compensation package of $1.8 million fell by $55,000 even though his base salary rose by more than $90,000. His bonus totaled $983,600, down from $1.1 million.

Blue Cross spokesman Lew Borman said the lower bonuses for executives were pegged to various performance factors but declined to specify why Wilson's bonus was less.

"It certainly looks like a change from some years when people's bonuses went up hundreds of thousands of dollars," said Adam Searing, project director of the N.C. Justice Center's Health Access Coalition and a frequent critic of Blue Cross.

Searing said he would like to see the legislature amend state law so that the state Department of Insurance can take into account factors such as compensation for executives and directors and profit margins when it considers Blue Cross's requests for a premium increase.

"That doesn't mean I'm saying that everyone needs to lower their bonuses or whatever," he said. "I'm saying saying the [Insurance Department] should be able to take that into consideration."

Compensation for directors rose last year, which Petkau said was the result of an independent consultant's comparison of the pay received by comparable directors nationwide.

The highest-paid director -- Jeffrey Lyle Houpt, former CEO of UNC Health Care -- saw his compensation rise to $79,676, an increase of $18,194.

Unlike nonprofits, being a not-for profit doesn't come with tax exemptions. Blue Cross, which has nearly 4,200 employees, paid nearly $160.2 million in local, state and federal taxes last year.

Premiums for individual Blue Cross customers are rising an average of 5 percent this year. Premiums are unchanged for individuals who have the high-deductible Blue Options HSA plan.

Blue Cross is currently quoting rates for small employers that average about 6.7 percent; larger employers are seeing increases that average about 4.6 percent higher.

Blue Cross is required to file an annual financial report with the state Insurance Department.

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