Strong investment income lifted health insurer Blue Cross Blue Shield of Michigan to higher earnings across all business lines in 2019.
The $818 million in net income last year came on total revenues of $30.2 billion. That compares to net income of $566 million on total revenues of $29.3 billion in 2018.
The 2019 results included lower operating income of $248 million, down 60 percent from a year earlier, and $603 million in investment income that was more than six times higher than 2018.
The results include all of the for-profit subsidiaries of the nonprofit mutual insurer, including the Lansing-based worker’s compensation carrier AF Group, which made $116 million in 2019.
“We are moderating or lowering our health insurance rates for individuals, small employers and seniors while keeping our profits low, but positive,” Blue Cross Blue Shield President and CEO Daniel Loepp said in a statement. “We are giving back to Michigan to strengthen the safety net and protect the vulnerable. And we are leveraging our investment holdings and non-health subsidiaries to strengthen our financial foundation and take pressure off our health insurance business for profitability.”
Results for 2019 compare to the $566 million in net income for 2018 that came on total revenues of $29.3 billion with $632 million in operating income and $96 million in investment earnings.
Also last year, Leopp earned $12.1 million in total compensation that included a $1.5 million base salary and a $9 million bonus.
The rate moderation for health insurance in recent years contributed to Blue Cross Blue Shield’s lower operating gain, said Paul Mozak, senior vice president for finance and chief risk officer.
“Based upon some strength we had in 2018, we continue to moderate our pricing across the board, especially in the individual and small group markets, and with those price changes it reduced the operating margin,” Mozak said.
Blue Cross Blue Shield of Michigan’s annual rate adjustments for health policies averaged 1.2 percent since 2015, Mozak said. The insurer has reduced rates nine times during the same timeframe, “allowing for us to moderate costs for small businesses,” he said.
Blue Cross Blue Shield hopes to maintain rate moderation, Mozak said.
“This moderation approach gives small employers more predictability in their cost planning and more affordability for their employee benefits,” Mozak said.
For small businesses that renewed health policies Jan. 1l, 2020, Blue Cross Blue Shield raised rates a statewide average of 3.7 percent. HMO subsidiary Blue Care Network increased rates for small employers by an average of 5 percent for 2020.
In the individual health insurance market, rates for Blue Cross policies declined a statewide average of 1.2 percent for 2020 and declined 7.7 percent for Blue Care Network.
Blue Cross Blue Shield had 5.38 million members in all 50 states at the end of 2019, up by more than 35,000 from a year earlier.
In health insurance, Blue Cross Blue Shield of Michigan recorded an underwriting gain of $165.5 million on revenues of $9.23 billion in 2019, according to a filing with state regulators. When combined with $507.4 million in investment income and taxes, Blue Cross Blue Shield recorded net income of $905.3 million on its health insurance business in Michigan in 2019.
That compares to an underwriting gain on health policies of $194.1 million on $9.08 billion in total revenues and investment income of $124.9 million in 2018, when Blue Cross Blue Shield of Michigan reported $559.4 million in net income for the health insurance business.