NEW YORK – Standard & Poor’s Ratings Services has lowered its counterparty credit and financial strength ratings on Blue Cross & Blue Shield of Rhode Island to “BBB-” from “BBB,” citing concerns related to “management’s challenges in a difficult regulatory and operating environment.”
“In 2004, the plan faced the unfavorable effect of a regulated surplus freeze, providers’ pressure regarding fees, the loss of its CEO, and the uncertainty regarding the renewal of the state of Rhode Island employee health account, which could adversely affect the plan’s competitive position,” the rating agency said in a news release.
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The cap on Blue Cross’s surplus and the pressure to boost provider pay “have negatively affected, and will continue to stress, prospective earnings quality,” the agency continued. “Standard & Poor’s also believes there is higher potential for increased price competition to gain a greater foothold in the state, which could lower operating earnings.”
The agency projected that Blue Cross’s earnings for 2004 would drop to $30 million to $35 million and remain flat in 2005; in 2003, the company netted $57.6 million, which it put into its reserves. Despite the lower earnings, however, Standard & Poor’s said the company’s capital adequacy remained strong – at over 160 percent by the end of 2004 – and would likely be maintained at strong levels in 2005, at more than 150 percent.
The agency also predicted that membership would stabilize at 630,000 members in 2005. Blue Cross continues to have a “good competitive position,” Standard & Poor’s noted, with a 61-percent market share in 2004.
Among Blue Cross’s disadvantages, the agency noted a “narrow geographic scope” and a “historically difficult regulatory environment, which significantly exposes the company to adverse developments on the legislative and regulatory fronts.”
