Priority Health and Blue Care Network each reported strong bottom lines through the third quarter of 2017, although financial officers at both plans caution their results could retreat by year’s end.
The fourth quarter is usually the largest for medical claims to health plans, as people wait until later in the year once they’ve met their annual deductible to have elective medical procedures.
“Generally the fourth quarter is where we see our largest medical costs,” said Mary Anne Jones, treasurer and CFO at Grand Rapids-based Priority Health. “Deductibles are being hit and there’s more utilization of health care in the fourth quarter overall from a seasonality perspective.”
As a result, the strong growth in what Priority Health makes on underwriting health policies “will certainly taper back down” in the fourth quarter, Jones said. She projects the underwriting margin for the health plan’s HMO business to drop back from about 3.5 percent recorded at the end of September to the targeted rate of 2 percent, “which is where we want to be.”
At least for now, favorable medical claims trends, lower administrative costs, higher investment income, and an easing of taxes and fees levied under the Affordable Care Act this year have helped the two health plans’ bottom lines through the third quarter.
Priority Health reported $104.9 million in net income for the first nine months of 2017 on total revenues of $2.25 billion, a $93.3 million net underwriting gain and $10.9 million in net investment income, according to a quarterly financial report filed with the Michigan Department of Insurance and Financial Services.
The result compares to net income of $43.3 million through the third quarter of 2016 that came on total revenues of $1.97 billion, a net underwriting gain of $33.7 million and $8.8 million in net investment income.
Much of the sizeable $59.6 million year-over-year increase in Priority Health’s underwriting gain came from reversing “pretty significant” losses on individual policies in 2016, Jones said. The individual losses through the third quarter of last year totaled roughly $35 million, she said.
Priority Health’s HMO enrollment as of Sept. 30 grew by more than 35,000 members from a year earlier, or 7 percent, to 529,253. The enrollment growth came in individual policies — which grew by more than 24,000 to 95,106 — and more Medicare enrollees.
Blue Care Network recorded net income through the third quarter of $146 million on total revenues of $2.69 billion, a net underwriting gain of $110.6 million — more than double from a year ago — and $35.9 million in investment gain.
The result for the first nine months of 2017 compares to the same period in 2016 in which Blue Care Network recorded net income of $86.3 million on $2.5 billion in total revenues, a $54.7 million underwriting gain, and a net investment gain of $27.8 million.
As with Priority Health, Blue Care Network expects the financial results for the full year will look different than what’s been reported through the first three quarters of 2017. People hitting their deductible late in the year and the onset of flu season will drive a year-end spike in medical claims.
“Things kind of catch up to us in the fourth quarter,” said Jim Kallas, treasurer and vice president of finance at Blue Care Network. “Typically the fourth quarter is our hardest and most challenging financial quarter.”
Blue Care Network also has seen a “small, modest pause” in the rapidly rising cost of specialty drugs, “but we think it’s just a pause,” Kallas said.
Blue Care Network, the HMO subsidiary of Blue Cross Blue Shield of Michigan, had 682,683 members statewide at the end of the third quarter, up by nearly 13,000 from a year earlier.