A new report shows Rhode Island’s major health plans did very differently last year, with UnitedHealthcare of New England posting a 4.4-percent profit on its direct-insured business while Blue Cross & Blue Shield of Rhode Island made a 1.6-percent profit.
In 2003, Blue Cross made a 4.5-percent profit, outperforming United, but a lot has changed since then: Legislation and political pressure have forced the company to hold down premiums, stop building its surplus and return a portion, even as it raised doctors’ pay.
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United, which as a for-profit corporation is subject to less oversight than Blue Cross, faced no such interference, though in the last year, in conjunction with winning the state employees’ insurance contract, it was pressured to raise its reimbursement rates.
The 2004 figures, of course, don’t yet reflect the latest developments, but rather show the financial context in which those changes occurred. And depending on whom you ask, they provide reasons to worry – or not – about where the industry is headed.
Health Insurance Commissioner Christopher F. Koller, who released the report jointly with the R.I. Department of Health, said the figures show Rhode Island’s health insurance market, which Blue Cross dominates (with 78 percent of premiums and 69 percent of members as of 2004), is slightly less profitable and less financially strong than health plans nationally.
But both Blue Cross and United – and for that matter, Neighborhood Health Plan of Rhode Island, Koller’s former employer and the state’s largest Medicaid insurer – are financially stable, and that’s what really matters, Koller said.
What Koller said interests him more are apparently substantial drops in both health plans’ membership and major differences between them in the share of premiums being spent on medical services and on administrative costs.
A PBN calculation based on the same source materials as Koller’s report shows that from 2000 to 2004, Blue Cross’s direct-insured membership dropped by 6.3 percent, or almost 32,000, while United’s dropped by 30.6 percent, or more than 64,000 members.
Those figures exclude the plans’ self-insured business, however, which they’re not required to report. But when United got the state contract last October, it said the extra 52,000 lives would bring its membership to just under 250,000 – meaning it already had about 52,000 other subscribers in self-insured plans. Blue Cross put its own total membership at 643,000 at the time, meaning it had about 168,000 people in self-insured plans.
Asked if their membership had declined, both companies said it had just shifted to self-insured.
“No, we haven’t reduced membership – we have increased membership,” said United CEO Stephen J. Farrell. Services for self-insured companies are “a core competency of ours,” he said.
The reason the self-insured numbers matter is that surveys have shown that both nationally and in Rhode Island, more and more workers report that they no longer have employer-based health insurance, and Koller said he wants to better document the trend.
This month, the state Department of Labor and Training issued a report, based on a survey of nearly 2,000 employers, showing that 80 percent of Rhode Island’s workers have access to job-based health benefits, including 94 percent of full-time workers and 40 percent of part-timers.
At first glance, those numbers seem high compared with data from the latest Medical Expenditure Panel Survey, which showed that 56 percent of private employers nationwide and 64 percent of Rhode Island employers offered health benefits in 2003.
The difference, however, may be take-up rates: Only 85 percent of full-time workers with access to health benefits accept them, and more than half take just the single plan. Among part-timers, only 28 percent take the offered benefits, and half of them take the single plan.
“As costs go up, they’re shifted to employees, and the employees can’t afford it so they drop (the coverage),” said Koller. “And the ones who can afford it are getting less coverage.” That, in turn, leads more people to use emergency rooms because they’re uninsured and have no access to alternatives, and that leads to higher costs for all, “because a portion of their insurance rates will be subsidizing the uninsured.”
Given this phenomenon, Koller said, it’s crucial to look closely at how insurers are spending their money, and to determine what’s behind a major difference between Blue Cross and United on that front. Last year, the new report shows, 87 cents of every Blue Cross premium dollar went to medical costs, and 11.4 cents went to administrative overhead. At United, meanwhile, 78.7 cents went to medical costs, while 15.2 went to overhead.
Nationally, health plans spent 85.1 cents per dollar on medical costs and 11.6 cents on overhead – meaning Blue Cross is close to average, while United is noticeably below average on medical costs and above average on overhead.
Koller said the differences “have real policy implications,” but first they have to be explained: Is United picking healthier-than-average members, is it skimping on care, or is it just more efficient at managing services? Is its administration bloated, or are the numbers skewed by the company’s far-smaller direct-insured membership in Rhode Island?
Farrell said the latter is definitely a factor, but United also “reinvests in the organization” to develop services that will keep costs down. As for picking healthier customers, Farrell said that’s definitely not the case – United has analyzed its demographics “and we match up pretty nicely” with statewide figures.
Ultimately, Farrell said, “the market dictates” how much United can charge, and it needs to control both medical and administrative costs to stay competitive. “If we can’t meet that (goal), we’re not going to grow; we’re not going to have the membership.”
Blue Cross CEO James E. Purcell said he sees no evidence of United skimming the healthier customers, and he doesn’t believe his competitor should be judged harshly for taking a different approach than Blue Cross.
“United is a for-profit; their primary obligation is to maximize the profit to their shareholders,” he said. “That’s just a fact – it doesn’t make them bad; it just makes them different.”
But while Blue Cross is happy to embrace its mission as a nonprofit, Purcell said, the state has to be careful not to squeeze it so hard that the company becomes financially unstable.
“I would agree with the report that we are stable, but we are still 36th out of 40 Blues plans in terms of the adequacy of our reserves,” Purcell said. “We’re not in bad financial shape, but it’s not where we should be.”
Last year’s narrow profit margin was just as Blue Cross had predicted, Purcell said, and given the additional measures taken at the governor’s request, “we’re going to make much less this year” – eke out a profit still, but under 1 percent.
As for 2006, Purcell said, “I think we’ll earn somewhat more money than we did this year,” and Blue Cross is planning to start adding to its reserves again, though “more slowly,” at a rate of 1.5 to 2 percent, and it’s working with Koller to agree on what’s appropriate.
Still, looking ahead, Purcell said, “I have concerns, because people have always seen Blue Cross as the big dominant health insurer in Rhode Island, when in fact United is 20 times as big. … If people want a local nonprofit health insurer, they have to understand that with all of the additional obligations that are heaped on us, we have to get some breaks.”
The full report, “The Health of RI’s Health Insurers,” is available at www.health.ri.gov.
