Blue Cross profits surge

The parent of Blue Cross & Blue Shield of Illinois raked in $1.1 billion in profit last year, a doubling of 2009's results that is likely to stoke the controversy over skyrocketing health insurance costs.

Chicago-based Health Care Service Corp. has kept up the torrid pace in 2011, with net income leaping by nearly two-thirds to $437 million in the first quarter from $275 million a year earlier.

The robust financial performance comes amid nationwide criticism of the health insurance industry, which is basking in record profits thanks to double-digit premium increases and reduced claims, as budget-minded consumers put off going to the doctor. Just this month, non-profit Blue Shield of California said it would take the rare step of refunding $167 million to customers and place a cap on future profits after an outcry about premiums and executive compensation.

Health Care Service, the largest health insurer in Illinois, with 44% of the market, could be facing similar pressure to reduce rates or refund premiums if its profits keep soaring and the company continues to dole out lucrative salaries to its executives, such as CEO Patricia Hemingway Hall, who was paid $8 million last year. Meanwhile, rising rates intensify concerns that many workers will lose their employer-sponsored benefits as the Obama administration's health care overhaul takes effect in 2014.

Blue Cross is increasing rates by 3% to 10% for employer-sponsored group plans this year after hikes of 20% or more last fall, estimates Nancy Daas, a partner in Chicago-based benefits consultant CMC Advisory Group.

Sondra Roberto, a staff attorney and health insurance expert at Yonkers, N.Y.-based non-profit Consumers Union, says, “Customers, particularly individual and small-group customers, should get the benefit of the company's financial strength through reduced rates, not higher rates. Instead, we have seen the company repeatedly raising rates—sometimes in the double digits.”

A Health Care Service spokesman says the company's rates are competitive with other insurers based on “quality, access to care and price.”

Blue Cross' profit rose as customers put off non-essential medical care.
But a new federal law this year that requires health insurance companies to pay out between 80% and 85% of premium revenue for medical benefits likely will force Health Care Service to issue rebates to some customers, according to a report in April by New York-based Citigroup Global Markets Inc.

The fourth-largest health insurer in the U.S., Health Care Service is the exclusive Blue Cross plan in New Mexico, Texas and Oklahoma, as well as in Illinois. Founded in Chicago in 1936, it is a mutual company, owned by its policyholders.

“As a non-investor-owned company, we can act as a positive force to keep rates reasonable in the markets where we operate because our primary objective is not to maximize profits,” the company spokesman says, noting that more than 90% of its customers renewed in 2010.

Last year's financial results “offer some evidence that we can dampen increases for 2011,” he adds, declining to comment on specific rates.

The 2010 financial performance is partly due to UniCare Inc.'s decision to exit Illinois and Texas, where Health Care Service is strong. The company struck a deal to take over UniCare's customers in those states, which resulted in 194,000 new insured members, according to Health Care Service's 2010 financial statement.