Published in Health Care
Left: Mary Anne Jones, right: Daniel Loepp Left: Mary Anne Jones, right: Daniel Loepp COURTESY PHOTOS

Investments drive 2019 profit gains for Priority Health, Blue Cross

BY Sunday, March 15, 2020 05:30pm

Strong investment income lifted earnings in 2019 for the state’s two largest health insurers, Blue Cross Blue Shield of Michigan and Priority Health.

Profits grew 37 percent over the previous year for Grand Rapids-based Priority Health, which recorded $188 million in net income last year across all lines of business. The earnings came on revenues of $4.17 billion from commercial, individual, Medicare and Medicaid health policies, with $118 million in operating income and higher investment earnings of $69.7 million.

“2019 was another great (year) and great performance keeps us well-positioned for continued growth across all markets,” said Mary Anne Jones, senior vice president for finance and operations for Priority Health.

The 2019 results compare to net income of $137.2 million (excluding taxes) in 2018 on $3.82 billion in revenues. Priority Health in 2018 generated $113.8 million in operating income from underwriting health policies and $25.3 million in investment earnings.

Priority Health’s primary 544,000-member HMO business made $145.6 million in net income in 2019 on higher revenues of $3.4 billion, generating $83.1 million in operating income and $61 million in investment earnings.

Investment income primarily drove the higher revenues in 2019. 

“It was a great year in the market,” Jones said.

Knowing that “the market is a little fickle,” as demonstrated by the volatility on Wall Street amid coronavirus concerns, Priority Health does not count on large investment returns each year, she said.

Priority Health’s 2019 operating income from underwriting HMO policies declined by $19.3 million from the prior year, a result of a reduction in premiums the last two years in policies for small employers and individuals, Jones said. For 2020, Priority Health reduced rates for small-group policies an average of 1.6 percent statewide. Rates approved by state regulators last fall for policies in the individual market dipped an average of 0.1 percent.

Priority Health aims to continue delivering either rate reductions or increases within the inflation rate, Jones said.

“We’ve been successful so far and our goal is to continue to find ways to keep (health coverage) more affordable,” she said.

The second-largest health plan in Michigan to Blue Cross Blue Shield, Priority Health grew total enrollment during 2019 by 6 percent, or nearly 42,000 members, to 739,289 as of Dec. 31. The acquisition of Detroit-based HMO Total Health Care that was effective Jan. 1, 2020 — plus a strong open enrollment period in late 2019 — pushed enrollment to about 967,000 at the beginning of the year, Jones said.

Priority Health and Blue Cross Blue Shield of Michigan combined hold a large majority of the market for health benefits in West Michigan.

‘Giving back to Michigan’

Blue Cross Blue Shield reported $818 million in net income for last year that came on total revenues of $30.2 billion — up 45 percent from net income of $566 million on total revenues of $29.3 billion in the prior year.

The 2019 results included lower operating income of $248 million, down 60 percent from a year earlier because of lower rates, 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.”

Loepp’s total compensation declined 37 percent in 2019 — to $12.1 million — based on the company’s financial performance.

Results for 2019 compare to Blue Cross Blue Shield’s $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.

Moderating rates

The rate moderation for health insurance in recent years also 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. 1, 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 $9.23 billion in revenues for last year, 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.

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