N.C. Blue Cross profit declines 47% to $260.5M in 2020
Blue Cross and Blue Shield of North Carolina reported net income of $260.5 million last year, down from $492 million in 2019.
The company said it lost $16 million on its operating business as COVID-19-related claims topped $200 million. But the state’s dominant health insurer benefited from strong financial markets and gains on sales of stocks and bonds. The net income margin was 2.6%, down from 5% last year.
Blue Cross, which operates as a not-for-profit and does not have shareholders, said membership grew 1.3% to 3.86 million, according to today’s report. Total revenue was flat for the third straight year at $9.9 billion because it lowered some premiums and entered cost-sharing programs with some hospitals and physician groups.
“While the pandemic dominated much of 2020, we were able to remain financially stable and act nimbly to ensure our members received the care they needed and lower premiums,” said Mitch Perry, the company’s chief financial officer. “Our goal is to make health care better, simpler and more affordable, and we did not let increased costs from the COVID-19 pandemic sideline that effort.”
Blue Cross typically aims for a 3% operating margin, though it expected 2020 would be a difficult financial year because of the pandemic, Perry said in a conference call today. This year the insurer essentially broke even with a negative margin of 16 basis points.
Durham-based Blue Cross said its medical claims and expenses rose about 3% to $7.5 billion, a $200 billion increase from a year earlier. Annual claims per person because of higher costs for drugs, especially cancer and autoimmune disease drugs.
The company said it spent $5,800 per fully insured customer, which was a 4% increase from 2019 and a 23% increase from five years earlier. “The cost of health care is still too high,” he said.
Asked about the wave of consolidations among N.C. health systems, Perry said research shows hospital mergers typically raise costs and don’t improve care. The insurer is seeking information to make sure the combinations lead to better outcomes, he said.
Blue Cross said it reduced premiums for its Affordable Care Act plans for a third straight year, totaling nearly $1 billion in cumulative savings over that period. The company said it reduced operating costs by more than $100 million in the last year.
Blue Cross reported net income of $492 million in 2019, $685 million in 2018, $734 million in 2017 and $185 million in 2016. It reported flat results in 2015 and a $50.6 million loss in 2014.
The annual results were not affected by a $365 million award that Blue Cross received after a Supreme Court decision last April that ordered payments to insurers under the Affordable Care Act’s “risk corridor” program. Much of the money was spent on pre-loaded gift cards of $100 to $500 mailed to members depending on their plans, rather than booking a gain, Perry said. Other uses of the money included reducing premiums and paying a rebate related to medical losses.
The company also reported that CEO Tunde Sotune received a $750,000 “sign-on payment” when he joined last year. His total compensation was $1.53 million, including a $655,769 salary. The highest-paid Blue Cross executive in 2020 was Gerald Petkau, who served as interim CEO before Sotunde’s hiring. He received total compensation of $2.7 million. Eight other Blue Cross executives had total compensation ranging from $1.3 million to $1.9 million.
Since his arrival, Sotunde has instituted significant changes in the company’s management ranks.