New report indicates deep reserve pool, 4.3% profit margin
Rhode Island’s health insurers are more profitable and more financially
stable than other health plans in New England and nationally, according to a
state Department of Health report to be released today.
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Profit margins for the state’s four health insurers averaged
4.3 percent in 2001, far exceeding the national average of less than 1 percent
and the New England average of 2.2 percent.
Rhode Island health plans also have rapidly built up their cash
reserves – a key measure of fiscal stability – and are financially stronger
as a group than health plans elsewhere, the report shows. For example, the average
number of months a health plan could use its cash reserves to pay medical claims
was 1.8 months in Rhode Island in 2001, compared with 1.2 months for insurers
nationally.
And health plans here generally are run more efficiently than average, the
report says, spending less on administrative overhead such as management and
marketing than insurers elsewhere.
The report is the health department’s first-ever financial analysis of the
$2 billion health insurance industry in Rhode Island. It examines financial
data from 2000 through 2002 for Blue Cross & Blue Shield of Rhode Island;
Coordinated Health Partners, or Blue CHiP (a for-profit, wholly owned subsidiary
of Blue Cross); UnitedHealthcare of New England; and Neighborhood Health Plan
of Rhode Island.
The financial figures were gleaned from annual reports that health plans are
required to file with the health department and the Department of Business Regulation.
The national averages are from A.M. Best, a national firm that rates the financial
strength of insurance companies.
“This basically shows that the health plans here are really strong,” said
Bruce Cryan, the health department analyst who compiled the report.
Cryan said the report is meant to shed public light on the financial operations
of health insurers while serving as a tool for policy-makers; and it likely
will add to growing debate among providers, health plans and employers over
the level of competition in Rhode Island.
“There has been a lot of debate between payers and providers over whether
or not the plans are too strong, but there hasn’t been any empirical evidence
available,” Cryan said. “Now we’ve got it.”
But he emphasized that the report does not draw conclusions about the appropriate
level of profitability, cash reserves or other fiscal benchmarks. He said the
comparisons to regional and national averages are intended only to offer another
perspective.
“This doesn’t tell you what these numbers should be,” Cryan said. “Nobody
can really tell you that because each market is different.”
Providers and employers in recent years have complained that the growing profitability
of health plans in Rhode Island reflects a dearth of competition. Many have
said the sharp gains could be used to help offset soaring premiums or boost
reimbursement to doctors and hospitals.
Health insurers keep cash reserves to ensure they will be able to pay claims
even in the face of rising medical costs or a market downturn. Blue Cross had
the most comfortable reserve level in 2002, with a 2.8-month cushion. United
had a 2.5-month reserve, while Blue CHiP had 1.7 months and Neighborhood Health
Plan’s was about three weeks.
Combined, Blue Cross and Blue CHiP had a record high $250 million in reserves
at the end of 2002.
Other significant findings from the report include:
• Average margins for Rhode Island health insurers declined in 2002, from
4.3 percent to 2.3 percent, largely because the cost of covering medical claims
grew faster than revenue. (National and regional comparisons for 2002 were unavailable.)
• United saw the sharpest turnabout in financial stability between 2000 and
2002, growing its cash reserve from a three-week equivalent to a 2.5-month reserve.
Its profit margins grew from 3.3 percent to 5.5 percent during that time.
• The net worth of the four insurers surged 160 percent from 1999 to 2001,
vs. a 30 percent increase for health plans nationally and 70 percent growth
for New England health plans.
The state’s 56-day average was higher than the 46-day national average in
2001, although it has decreased steadily over the three-year period.
The report calls the claims-payment figure a “bellwether measure of liquidity,”
and says extending claims-payment periods is in the best financial interest
of health plans, as long as they can maintain good provider relations.
The report, titled “The Health of Rhode Island’s Health Insurers,” will be
posted on the health department’s Web site, www.health.state.ri.us.
Mike Colias is a contributing writer to PBN.
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