Report: R.I.’s 3 health plans posted solid ’06 profits

A report issued by the state last week shows all three of Rhode Island’s health insurers posted “strong financial performances” last year: a 2.9-percent profit margin for Blue Cross & Blue Shield of Rhode Island, 4.9 percent for UnitedHealthcare of New England, and 4.3 percent for Neighborhood Health Plan of Rhode Island.
The report, issued jointly by the R.I. Department of Health and Health Insurance Commissioner Christopher F. Koller, also shows all three insurers have growing reserves and are, “by any measure … financially solvent,” a complete turnabout from a decade ago.
But while some critics of the industry quickly jumped on the data as proof that insurers are making big money at providers’ and consumers’ expense, the report actually paints a more complex picture of the finances while steering away from broader value judgments.
In an interview, Koller said the report shows that “from a profit and reserves standpoint, Rhode Island is no different than surrounding states.”
“Whether that’s good public policy,” he added, “is a separate question.”
The report shows Rhode Island’s health insurers, on average, had a slimmer profit margin last year (3.4 percent) than insurers in Massachusetts (3.6 percent), Connecticut (5.2 percent) or New England as a whole (4.0 percent).
The regional comparison also shows Rhode Island’s insurers have slightly higher net worths, on average, than their regional peers, slightly stronger balance sheets, higher reserves – 54 percent of total assets, vs. 50 percent for the region – and slightly lower administrative costs.
The Ocean State insurers also held more unpaid claims, however, an average of 14.7 days’ worth vs. 11.8, and they spent slightly less on actual health services, 85 percent of revenue vs. 85.2 percent.
On the latter measure, however, there are big differences between the three Rhode Island companies: While Neighborhood, which serves strictly Medicaid beneficiaries under a state contract, had an 88.3-percent medical expense ratio, Blue Cross was at 85.5 percent, and United, at 80.9 percent.
The analysis also shows that while United’s and Neighborhood’s medical expenses have grown at the same rate as their premium revenue – by 5 and 8 percent, respectively – Blue Cross last year grew its premiums by 7 percent but only saw medical costs rise by 5 percent.
The latter gave a boost to Blue Cross’ profit margin, which in 2004 had been just 1.57 percent, and in 2005, 1.96 percent.
However one judges all this information, one thing the report makes clear is that this is a formidable industry: Last year, the three insurers combined spent more than $1.9 billion on medical services, plus another quarter-billion on payroll, marketing, investments and other administrative costs.
But the three companies are so different, the report notes, that it’s difficult to compare them. One is a state-chartered, nonprofit corporation; another is a wholly owned subsidiary of a national for-profit company, and the third is a nonprofit HMO devoted to a narrow slice of the market.
United spokeswoman Debora M. Spano made that point in commenting on her company’s profit margin for the year. While by comparison with its nonprofit competitors, United’s operation looks particularly lucrative, it’s hardly impressive by public company standards.
“A profit under 5 percent for a for-profit company would put many companies out of business,” she said, “but because we’re in the health insurance industry, it’s looked at differently.”
Blue Cross spokeswoman Kim Keough, meanwhile, noted that while a $50 million profit “seems like a lot to you and I,” Blue Cross “is a multi-billion-dollar company,” with nearly $1.7 billion paid out in medical claims in 2006.
Keough also touched on another sensitive issue for Blue Cross – while the report itself just says the company’s surplus “approached the target range” of 23 to 31 percent recommended by a study commissioned by Koller (it was 21.9 percent of 2006 revenue), the insurer has been under pressure to stop growing its reserves.
“We are not comfortable with where the reserves are, and experts in the field consider our current reserve level inadequate, so we plan to further increase our reserves to protect our financial stability,” she said.
Koller himself didn’t quite say the insurers should stop growing their reserves, but he did say that if the reserves are adequate already, insurers could have some money available to better reimburse providers, provide rate relief to consumers, and invest in the health care system.
Edward J. Quinlan, president of the Hospital Association of Rhode Island, certainly saw the report that way.
“The expressed goal of the health insurance commissioner is a balanced health care system, and this report further reinforces the reality that the system is very much unbalanced,” he said. “While hospitals in our state in ’06 recorded a positive margin of one-tenth of one percent, the contrast with the plans is striking.”
It’s not that insurers’ solvency is not important, he added, “but the solvency and financial viability of hospitals and providers should be just as important.” •