Health Insurers Increase Profits 32 Percent

Whether Oregon health insurers were profitable or not last year largely depended on the stock market
By: 
David Rosenfeld
The Lund Report
March 17, 2010 -- Investment gains for Oregon’s eight largest health insurers were about the only thing keeping consumers’ premiums from climbing even higher this year.
 
The group of eight domiciled insurers ended 2009 with more than $100.5 million in net income – 32 percent more than they accrued in 2008 – based on the latest financial documents submitted to the Oregon Insurance Division.
 
But the vast majority of that gain, $78.5 million, came from investment earnings up from $35.9 million in the struggling 2008 market. As a result, health insurers earned far more of their income by investing premium dollars in the financial markets than from selling health insurance.
 
At the same time, the number of people insured by Oregon’s eight largest insurers dropped by 2.2 percent from the end of 2008 to the end of 2009 when they insured around 1.82 million people in group, individual or Medicare Advantage health plans.
 
In 2009, compared to the year before, insurers collected 1 percent more premium revenue and spent just 0.3 percent more on hospital and medical expenses.
 
Oregon’s insurers increased their claims adjustment expenses (costs directly related to claims) by 2.8 percent and general administrative costs (salaries, marketing, etc) by 9 percent.
 
Overall profit margin (net income over premium earned) was 1.35 percent.
 
Income off investments slowed overall in the fourth quarter of 2009, putting the brakes somewhat on financial earnings that picked up during the first half of the year. In June, Oregon insurers were on pace to double profits from 2008.
 
Kaiser earned the highest net income at $36.2 million followed by Providence, which reduced its deficit in 2008 after losing nearly $30 million in investments that year.
 
Regence BlueCross BlueShield of Oregon is a rare example of an insurer earning more income off investments in 2008 when the economy was crashing than it did in 2009. Despite losing nearly 60,000 members last year, Regence posted $21 million in net income earnings thanks to $28 million in investment gains. In 2008, Regence posted $54.8 million of investment income, which completely accounted for the company’s $25 million in net income that year.
 
The ODS Companies – having incurred higher-than-expected costs as the major insurer for the Oregon Educators Benefit Board (see related story) – posted a $1 million deficit largely from a 36 percent spike in medical costs. Its financial statements do not reflect the increase in membership from the OEBB contract because those enrollees are considered part of a self-insured health plan.
 
Health Net of Oregon also posted deficit income of $3.2 million, and increased its claims adjustment expenses by $3 million while enrollment slightly declined.
 
In an annual report on health insurance, the Oregon Insurance Division reported that over the past 10 years, Oregon’s top seven health insurers (excluding PacifiCare) reported 2 percent net income over premiums. Over the past five years, medical loss ratio averaged 89 percent, administrative expenses 7 percent and claims adjustment expenses 3 percent.
 
2009 Year-End Financials

Health Plan Members Net Income Net Investment Gains Premium Revenue Prescription Drug Costs Total Hosp/Medical Expenses General Admin Costs Claims Adjustment Expenses Member Months
Regence BCBS of Oregon 718,680 $21,885,285 $28,541,610 $2,455,279,965 $216,876,990 $2,130,598,739 $186,642,907 $125,214,786 8,844,842
Kaiser Health Plan of the Northwest 466,598 $36,291,771 $25,458,806 $2,379,592,628 $220,478,242 $2,286,443,404 $108,076,316 $23,016,912 5,602,763
Providence Health Plan 184,041 $28,801,443 $10,885,903 $967,529,671 $93,696,964 $868,300,424 $43,545,534 $36,851,727 2,291,424
PacificSource Health Plan 183,494 $4,290,283 $543,049 $520,645,087 $51,949,578 $439,202,187 $61,524,739 $15,373,466 1,944,624
Health Net of Oregon 110,887 ($3,231,055) $1,496,961 $434,362,201 $42,722,236 $388,310,325 $38,411,992 $13,486,151 1,452,758
ODS Health Plan 67,900 ($979,067) $4,844,422 $216,864,121 $13,730,014 $219,027,326 $8,918,810 $9,141,109 763,209
LifeWise Health Plan of Oregon 65,413 $766,750 $5,213,824 $217,339,105 $18,897,910 $179,784,692 $28,172,432 $15,432,622 861,327
PacifiCare of Oregon (UnitedHealth Group) 25,047 $12,651,426 $1,537,977 $254,063,516 $17,879,156 $200,556,001 $29,736,369 $4,720,252 315,289
Total 1,822,060 $100,476,836 $78,522,552 $7,445,676,294 $676,231,090 $6,712,223,098 $505,029,099 $243,237,025 22,076,236
Notes: Total hospital/medical expenses include prescription drug costs.General administrative costs include salaries, commissions, marketing and office expenses.Claims adjustment expenses strictly relate to processing claims.

For More Information

 
For a complete excel spreadsheet of related health insurance financials click here.
 
For previous insurance financial reports click here.
 
For related stories on rate regulation click here.
 
For an article on profits by Oregon hospitals click here.
 
For a complete analysis of health insurance financials by the Oregon Insurance Division click here.

The following come from annual financial statements filed with the Division:

Health Net of Oregon 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $35,863,578 $33,942,738 $26,912,538 6% 33%
Total Revenues $434,200,265 $421,386,987 $359,003,838 3% 21%
Total Medical/Hospital Expenses $388,310,325 $366,164,556 $294,243,696 6% 32%
Claims Adjustment Expenses $13,486,151 $10,419,012 $6,404,422 29% 111%
General Administrative Expenses $38,411,992 $38,050,711 $44,586,225 1% -14%
Net Investment Income $1,496,961 $964,835 $3,078,076 55% -51%
Net Income -$3,231,055 $3,838,442 $10,707,851 -184% -130%
Total Member Months 1,452,758 1,516,441 1,536,769 -4% -6%

Kaiser of NW 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $494,918,142 $480,100,218 $359,200,000 3% 37.80%
Total Revenues $2,430,952,550 $2,320,950,407 $1,829,997,429 5% 32.80%
Total Medical/Hospital Expenses $2,286,443,404 $2,179,078,617 $1,711,755,281 5% 33.60%
Claims Adjustment Expenses $23,016,912 $22,076,549 $19,614,558 4% 17.30%
General Administrative Expenses $108,076,316 $101,672,224 $74,590,097 6% 44.90%
Net Investment Income $25,458,806 $12,762,803 $12,267,852 99% 107.50%
Net Income $36,291,771 $32,592,472 $36,944,016 11% -1.80%
Total Member Months 5,602,763 $5,633,547 5,603,437 -1% 0.00%

LifeWise 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $58,463,824 $58,818,863 $62,800,000 -1% -6.90%
Total Revenues $217,901,848 $267,714,955 $371,288,053 -19% -41.30%
Total Medical/Hospital Expenses $179,784,692 $235,612,701 $300,676,482 -24% -40.20%
Claims Adjustment Expenses $15,432,622 $19,479,471 $20,291,414 -21% -23.90%
General Administrative Expenses $28,172,432 $30,490,641 $36,664,656 -8% -23.20%
Net Investment Income $5,213,824 $2,556,400 $4,340,173 104% 20.10%
Net Income $766,750 -$9,953,137 $11,869,831 -108% -93.50%
Total Member Months 861,327 1,134,292 1,744,537 -24% -50.60%

ODS Health Plan 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $71,413,177 $39,846,144 $36,610,475 79% 95.10%
Total Revenues $216,864,121 $182,591,544 $134,003,649 19% 61.80%
Total Medical/Hospital Expenses $219,027,326 $160,649,740 $114,617,365 36% 91.10%
Claims Adjustment Expenses $9,141,109 $11,337,926 $8,616,174 -19% 6.10%
General Administrative Expenses $8,918,810 $11,631,812 $6,900,707 -23% 29.20%
Net Investment Income $4,844,422 -$991,132 $3,668,528 -589% 32.10%
Net Income -$9,979,067 $1,328,536 $4,912,905 -851% -303.10%
Total Member Months 763,209 658,065 521,880 16% 46.20%

PacifiCare (UnitedHealth) 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $14,245,190 $14,447,222 $17,159,968 -1% -17.00%
Total Revenues $253,422,184 $273,933,288 $310,629,648 -7% -18.40%
Total Medical/Hospital Expenses $200,556,001 $203,297,608 $257,195,747 -1% -22.00%
Claims Adjustment Expenses $4,720,252 $3,620,338 $6,433,021 30% -26.60%
General Administrative Expenses $29,736,369 $33,225,723 $37,304,365 -11% -20.30%
Net Investment Income $1,537,977 $2,811,234 $3,171,795 -45% -51.50%
Net Income $12,651,426 $29,244,692 $7,558,703 -57% 67.40%
Total Member Months 315,289 362,881 669,088 -13% -52.90%

PacificSource 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $110,481,876 $96,198,488 $112,800,000 15% -2%
Total Revenues $520,645,087 $512,341,466 $411,137,793 2% 27%
Total Medical/Hospital Expenses $439,202,187 $442,124,461 $340,349,672 -1% 29%
Claims Adjustment Expenses $15,373,466 $14,700,310 $8,058,649 5% 91%
General Administrative Expenses $61,524,739 $54,424,652 $35,679,401 13% 72%
Net Investment Income $543,049 -$7,772,852 $11,846,073 -107% -95%
Net Income $4,290,283 -$3,632,991 $29,879,960 -218% -86%
Total Member Months 1,944,624 1,866,027 1,789,224 4% 9%

Providence Health Plan 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $373,505,101 $343,049,903 $224,200,000 9% 66.60%
Total Revenues $967,529,671 $894,250,720 $661,477,600 8% 46.30%
Total Medical/Hospital Expenses $868,300,424 $796,444,039 $547,885,220 9% 58.50%
Claims Adjustment Expenses $36,851,727 $31,227,957 $12,795,044 18% 188.00%
General Administrative Expenses $43,545,534 $39,617,824 $49,713,802 10% -12.40%
Net Investment Income $10,885,903 -$29,219,480 $7,536,518 -137% 44.40%
Net Income $28,801,443 -$2,142,056 $59,440,286 1445% -51.50%
Total Member Months 2,291,424 2,274,377 1,886,412 1% 21.50%

Regence BCBS of Oregon 2009 2008 2005 (2008-2009) (2005-2009)
Surplus (cumulative) $565,197,607 $486,124,238 $466,860,469 16% 21%
Total Revenues $2,440,405,372 $2,595,653,513 $1,894,190,702 -6% 29%
Total Medical/Hospital Expenses $2,130,598,739 $2,335,370,649 $1,618,063,477 -9% 32%
Claims Adjustment Expenses $125,214,786 $123,820,274 $80,749,590 1% 55%
General Administrative Expenses $186,642,907 $165,762,200 $117,922,907 13% 58%
Net Investment Income $28,541,610 $54,821,549 $30,669,228 -48% -7%
Net Income $21,885,285 $25,093,568 $108,653,535 -13% -80%
Total Member Months 8,844,842 11,411,487 11,643,847 -22% -24%
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Submitted by medigap-broker on March 18, 2010 - 12:05pm.

As an insurance agent working in the industry, I'm all for making a profit, but only if it is to the benefit of both the customer and the business entity. Health insurers are abusing the system to continually increase their profitability at the expense of both consumers and insurance agents. Insurance companies fight tooth and nail when having to pay for a medical expense and when they finally do, they aren't responsible enough to make sure the expense is correct. On the agent side, they continually reduce commissions and try to take things in-house as much as possible to cut us out of the insurance ecosystem. Something has to change and I for one hope health reform passes this year.

I highly recommend a great site where you can learn more about Medicare and associated products:

http://www.psmbrokerage.com

It's a great resource for both agents and consumers.

Regards,

Alex Stone

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