Blue Cross ekes out profit in 2015 despite ACA losses

Blue Cross and Blue Shield, the state’s largest health insurer, announced Friday it eked out a small profit in 2015 despite mounting financial losses from customers insured through the Affordable Care Act.

Blue Cross also disclosed that it rewarded its CEO, Brad Wilson, with a 34 percent pay raise last year with a total compensation package now valued at $3.8 million. Each of the the not-for-profit’s 10 top executives received a raise in 2015, ranging from Wilson’s $971,403 increase to a bump of $177,603 for John Michael Parkerson, the chief marketing officer.

The bonuses and pay raises went into effect last year before Blue Cross faced withering criticism for technology malfunctions that caused thousands of customers to be overbilled or left them unable to confirm whether they were insured.

Still, the raises are rankling some independent insurance agents who were told in January that, in a move to control ACA losses, Blue Cross will stop paying sales commissions to brokers who sell ACA policies between April 1 and Dec. 1.

“If they can pay executive bonuses, they can pay us for what we’re doing,” said Raleigh broker Wanda Stephens. “We work on 100 percent commission, and they’re asking us to work pro bono.”

Blue Cross spokesman Lew Borman said the executive raises are appropriate: “Overall, salaries are in line with other companies of our nature and size. They are benchmarked by an independent corporate consultant and target priced to the middle of the market.”

As one of only three insurers offering ACA policies in the state, and the only one offering ACA coverage in all 100 counties, Blue Cross is a barometer of North Carolina’s experience with the Affordable Care Act.

Blue Cross returned to profitability in 2015 even though the company has lost more than $1 billion on ACA customers in two years. However, those losses have been offset by the ACA’s financial assistance programs, which have reduced the two-year loss to $405 million.

The Chapel Hill insurer was also able to offset ACA losses through profits made on other lines of business, such as Medicare Advantage and employer group plans, said chief financial officer Gerald Petkau.

Blue Cross’s $500,000 profit in 2015 follows a loss of $50.6 million in 2014, which was the insurer’s first loss in 15 years.

Petkau said Blue Cross is still weighing its options for 2017, which include ending ACA coverage in some counties, terminating certain policies, or getting out of the ACA market altogether. The company raised rates for individual policies by an average 32.5 percent this year, which Petkau said could help offset continued losses in the future.

“We can’t continue to sustain the kinds of losses we’ve experienced in the last two years,” Petkau said during a conference call with journalists. “We haven’t really made any decision about participating in 2017.”

Big bonuses

Adam Linker, a health policy analyst with the N.C. Justice Center in Raleigh, said Blue Cross’ rhetoric is not justified by the facts.

“It’s hard to see how the sky is falling,” Linker said. “Blue Cross weathered a global financial collapse, a Great Recession, and the most dramatic health insurance changes in a generation with one year of a small loss. Today’s statement shows they are back to profitability with strong reserves and the ability to pay healthy bonuses.”

Blue Cross’ filings with the Department of Insurance show that six executives were paid more than $1 million last year. Wilson’s 2015 pay includes a $1 million salary, $2.3 million bonus and “other compensation” valued at $534,317. His $3.8 million pay package in 2015 compares to $2.8 million in 2014. Most Blue Cross top executives, including Wilson, received pay cuts in 2014.

The latest executive raises became effective in 2015 and represent executive performance in 2014 and previous years, Petkau said.

The pay increases preceded Blue Cross’s technology mishaps and operational troubles in late 2015 and continuing into this year. Those problems led Wilson to issue public apologies, and hundreds of Blue Cross employees volunteered their time to staff customer service lines.

The N.C. Department of Insurance has received 7,622 customer calls as of Friday regarding Blue Cross operational problems, including 1,610 formal complaints against the insurer this year.

The department launched an investigation of Blue Cross business operations this month after thousands of customers reported not being able to confirm coverage or not being able to pay for coverage. Several thousand customers have been over-billed or double-billed, and customers have reported spending hours waiting on hold for Blue Cross customers service representatives.

Costly customers

Blue Cross reported it lost $282 million on its ACA customers last year after losing $123 million in 2014, totaling $405 million in two years. The company has received more than $600 million in financial assistance through the ACA, and has filed for $360 million more.

Most of the ACA customers receive federal subsidies for health insurance. They are sicker and older than Americans on average, and heavy users of specialty drugs, emergency rooms, cancer treatment and other costly medical services, Blue Cross officials say.

Overall, the company reported an increase of revenue, to $8.2 billion in 2015 from $8 billion in 2014. Medical claims also increased, to $6.5 billion in 2015 from $6.4 billion in 2014.

Blue Cross’ ACA enrollment slipped from about 340,000 to about 305,000, Pekau said.

Last year the company collected $1.8 billion in premiums from ACA customers, up from $1.3 billion in 2014. Petkau said that the most expensive 5 percent of the ACA pool paid just $108 million in premiums but cost the company $1.28 billion in medical expenses.

Blue Cross closed the year with 3.89 million total customers, down from 3.91 million at the end of 2014.

This story was originally published February 26, 2016 at 1:28 PM with the headline "Blue Cross ekes out profit in 2015 despite ACA losses."