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Published in Health Care

Priority Health, Blue Cross earnings highlight volatile 2020 for health insurers

BY Sunday, March 14, 2021 06:20pm

The yearlong COVID-19 pandemic drove down earnings last year at West Michigan’s major health insurance providers.

Blue Cross Blue Shield of Michigan and Priority Health — which together dominate the West Michigan market — each recorded lower net income for 2020 in a volatile year largely spent responding to the pandemic on several fronts. The year included waiving co-pays for COVID-19 testing and treatment for members, as well as providing employers premium credits at midyear as medical claims overall declined sharply last spring.

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Despite the volatile year, finance executives at Priority Health and Blue Cross Blue Shield say they met targets for annual operating margins.

“We had a really strong year,” said Priority Health Chief Financial Officer and Senior Vice President Mary Anne Jones. “2020 was unprecedented in terms of COVID and what we all went through, but we weathered the storm strongly and we also helped our members and providers weather the storm as well.”

Priority Health recorded net income of $143.2 million in 2020 on premiums revenue of $5.18 billion. The 2020 results included $187.6 million in operating income, and a $41.4 million loss on investments during a year of stock market volatility.

The 2.8-percent net income margin fits within the 2-percent to 3-percent range Priority Health targets each year for the bottom line, Jones said.

The 2020 financial picture includes $367.6 million in premium revenue from Total Health Care in Detroit that Priority Health acquired in January 2020. Between its two health plans, Total Health Care added nearly $4.8 million to Priority Health’s bottom line in 2020.

The year compares to the $185.8 million in net income Priority Health recorded in 2019 on $4.56 billion in premium revenue, with $82.2 million in investment income and $103.4 in operating income.

‘Focused on affordability’

Coming through the year in relatively good shape financially should enable Priority Health to maintain rate stability for small employers. Priority Health rates statewide increased an average of 2.6 percent for 2021 policy renewals. Priority Health Insurance Co. raised rates an average of 1.5 percent for policies that began Jan. 1.

“In looking at 2022, we’re still very much focused on affordability and keeping rates and trends as low as possible,” Jones said.

During 2020, Priority Health provided small group commercial and individual policyholders $37 million in premium credits of 15 percent on their bills in June and July. That number grew to $60 million with premium credits to the state on Medicaid policies, Jones said.

Priority Health’s higher costs from responding to the pandemic — including more than $180 million to treat members who contracted the coronavirus and became ill — were more than offset by the lower medical claims trend, she said.

Likewise, Blue Cross Blue Shield provided small employers a 30-percent premium credit in July. The premium credits resulted from significant reductions in medical claims early in the pandemic when care providers were unable to perform non-emergency surgeries and procedures.

As with most health plans and insurers, Priority and Blue Cross waived copays and deductibles on COVID-19 testing and treating for members, a cost that exceeded $20 million. Priority Health recently extended the zero out-of-pocket costs for members through Sept. 30, including COVID-19 vaccines.

Priority Health, which has more than 1 million members statewide enrolled across all policy types, also extended terms for employers that were hit hard by the pandemic and struggled to pay their monthly policy premiums. In the small and large group commercial markets, 47 employers took a premium deferral of three or six months.

“People just needed time and they needed the assurance that we were going to be partners with them,” Jones said. “We came up with custom plans for whatever worked for them and worked through it.”

‘Unprecedented volatility’

Detroit-based Blue Cross Blue Shield of Michigan — the largest health insurer in the state — recorded a $120 million operating gain for 2020 on total revenues of $30.1 billion across all lines of business that includes health insurance and Lansing-based worker’s compensation provider AF Group.

The 2020 results are in line with annual operating margins over the past decade that averaged less than 1 percent, but are less than half of an operating gain of $248 million in 2019 on $30.2 billion in total revenues.

In its core health insurance market in Michigan, Blue Cross Blue Shield recorded net income of $315.4 million on $9.3 billion in total revenues, according to a filing with state regulators. The results include an $87.7 million gain on underwriting health policies and a net $189.6 million investment gain. The year compares to $905.3 million in net income for 2019 for the health insurance business in Michigan on total revenues of $9.2 billion.

“Like all businesses, the Blue Cross Blue Shield of Michigan enterprise was confronted with unprecedented volatility and disruption in 2020,” Paul Mozak, Blue Cross Blue Shield of Michigan’s senior vice president for finance and chief risk officer, said during a March 1 media briefing. “We were able to weather that disruption and uncertainty in part by keeping our health business focused squarely on supporting the needs of our members, our group customers, provider partners and communities.”

Blue Cross Blue Shield put $1.3 billion toward the pandemic response in 2020 that includes more than $115 million in medical, dental and vision policy premium rebates. The company waived $74 million in member cost-sharing for COVID-19 tests and treatments and $65 million in telemedicine copays for members. Blue Cross Blue Shield made $680 million in advanced payments to health systems and $5 million to help physicians adopt telehealth platforms.

The company also paid $465 million in medical pharmacy claims for 164,000 members who became ill with COVID-19 last year, Mozak said.

An investment gain of $724 million offset some of that cost and “significantly lessened the pressure on Blue Cross’s health insurance lines,” he said. 

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