Blue Cross Blue Shield of Michigan earned $605 million on operations in 2018 across all of its businesses amid enrollment growth and continued moderation in premiums for small business health coverage.
The operating results came on total revenues of $29.3 billion and includes $137 million in investment income, plus $187 million earned by Lansing-based for-profit subsidiary Accident Fund Group that provides workers’ compensation insurance in all 50 states. The 2018 result compares to operating earnings of $385 million in 2017 on total revenues of $26.9 billion.
Earnings from for-profit subsidiaries such as the Accident Fund go to support Blue Cross Blue Shield’s nonprofit health insurance operations.
“That is money we don’t have to draw in from our health insurance members,” said Andy Hetzel, vice president of corporate communications. “If we can make profits outside of health insurance, then we can transfer those profits into our calculations on pricing for health insurance.”
Blue Cross Blue Shield of Michigan’s businesses include commercial health coverage, workers’ comp, dental and vision insurance, Medicaid and Medicare Advantage health plans, and technology and business process services.
Net income for 2018 totaled $580 million, about half of the prior year. The year-to-year difference resulted from federal tax reform at the end of 2017 that generated a $440 million tax benefit for that year, versus a $150 million tax expense for 2018.
In its core health insurance business in Michigan, Blue Cross Blue Shield earned $559.4 million in 2018 on $9.1 billion in revenues. The 2018 result includes a net underwriting gain of $194.1 million on health policies and net investment gain of $124.9 million, plus a federal tax gain of $231.3 million.
In releasing its operating results today, the Detroit-based Blue Cross Blue Shield said its operating margin this decade averaged zero. The insurer recorded a 2018 margin of 2.1 percent.
“We are a Michigan company with national reach and diversified revenue streams that go well beyond our core health insurance business but support our goal of delivering affordable health coverage to our members and customers,” Blue Cross Blue Shield President and CEO Dan Loepp said in a statement. “We are growing our membership, while moderating our health insurance prices and keeping overall profitability to an average of zero over 10 years.”
Loepp, Blue Cross Blue Shield’s CEO for the last 14 years, in 2018 received $19.2 million in total compensation through a $1.5 million base salary that was flat for the fifth year in a row, a $16.2 million bonus based on performance that increased by $5.8 million from 2017, and “other compensation” of $1.4 million that equates to the value of benefits such as life and car insurance reportable as income to the U.S. Internal Revenue Service.
The CEO’s pay “is similar to like-sized companies in our industry, Hetzel said.
“The enterprise is performing strongly and he’s being paid for that strong performance,” said Hetzel, noting the corporation’s growth, rate moderation for health coverage, diversification of revenues from non-health lines of business, and managing the business on low margins.
“We’re keeping health care affordable to the best of our ability here in Michigan, and Mr. Loepp is leading those efforts,” he said. “We think he earns the money that he makes.”
A nonprofit mutual company that owns for-profit subsidiaries, Blue Cross Blue Shield reported growth in the small business health insurance market of 22,171 enrollees to a little more than 342,338 people at the end of 2018, an increase of nearly 7 percent from 12 months earlier.
Senior Vice President for Finance and Chief Risk Officer Paul Mozak attributed 2018 enrollment growth in the small group market to the rate moderation of recent years for employers with 50 employees and under.
Overall, Blue Cross Blue Shield health insurance business grew in 2018 by nearly 90,000 enrollees to 4.71 million across all product lines in Michigan, driven by string increases in new clients and retention rates in the small group market.
“Blue Cross Blue Shield continues to be the leading choice for health insurance among businesses and individuals,” Mozak said.
Small group rates have decreased in nine quarters over the last five years, according to Blue Cross Blue Shield’s financial report. That includes a 3.1-percent reduction for small group clients renewing policies in the first and second quarters of 2019, and 3.8 percent for customers of HMO subsidiary Blue Care Network.
Blue Cross Blue Shield aims to continue the moderation trend for small employers, Hetzel said.
“We are determined to try to keep their health care costs as manageable and as predictable as possible,” Hetzel said. “You can expect Blue Cross to continue to focus on affordability and we have a track record now of doing that.”