State says health insurer finances are healthy

Richard Salit

Oct. 30, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- The state's three health insurers saw their financial health deteriorate in 2008, but compared with their counterparts elsewhere in New England they remained relatively well off, according to a new report.

Profitability for the three companies declined overall from 4.2 percent to 2.6 percent while their combined surpluses dipped 2 percent, the report of the state Health Insurance Commissioner found.

Meanwhile, compared with other insurers in New England, the companies spent more on administration and less on health-care services. But their premiums were lower, 3 percent less for commercial insurance, 18 percent less for Medicaid and 5 percent less for Medicare.

The fourth edition of The Health of RI's Health Insurers 2008 is based upon information provided to the state by nonprofit Blue Cross and Blue Shield of Rhode Island, for-profit United HealthCare of New England and Neighborhood Health Plan of Rhode Island, which serves Medicaid populations. Theirs is a $2.4-billion industry covering 440,000 individuals.

Earlier this year, Health Insurance Commissioner Christopher Koller held hearings on rate hike requests sought by insurers and rejected them, saying they were "unjustified" and "not acceptable" to consumers hit by spiraling health-care costs. Upon the release of the new report, he talked about the regulatory challenge of protecting insurers' finances while keeping insurance affordable.

"These two things can be in conflict with each other," he said. "It's about finding the right balance."

Blue Cross, the state's largest insurer, saw its profits dip 29 percent in 2008, to $44 million, and its surplus fell from $429 million to $412 million. But in the previous three years, it was consistently profitable and its surplus grew steadily, to 23.5 percent of revenue in 2008, within the target of 23 percent to 31 percent recommended by Koller.

The second-largest insurer, United Healthcare, saw its net income drop 27 percent, to $18 million. But it still managed to add to its surplus for the fourth year in a row, accumulating $127 million, "more than adequate to meet its needs."

Neighborhood Health, the smallest insurer and dependent on the state's commitment to RIte Care, posted a loss of $59,000. Its surplus held at $38 million, just 14.9 percent of revenue and well below the 20 to 25 percent recommended by Koller.

Koller noted that Medicare was the most profitable business for Blue Cross and United Health and that they "possess significantly greater financial reserves than the average for their New England counterparts."

The report found that the amount of premium revenues spent on medical care was lower in Rhode Island, 84.5 percent, than for New England, 87.5 percent. Physicians and consumers generally favor a higher ratio.

Meanwhile, administration expense escalated from 11.5 percent to 12.8 percent, compared with 10.5 percent for New England. Blue Cross drove that increase, with a 17-percent increase in administrative costs, to 13.3 percent of premium revenues. United cut its administrative expenses 3 percent.

"We all need to pay close attention to the share of premium that is going to ... administrative expenses," Koller said in a statement. However, he said, administrative expenses are just one factor driving health-care costs and that everyone needs "to make sure that money spent on medical care is spent well, for care that improves outcomes. Regardless of whatever health reform bill might pass in Congress, we need to continue to press for state-level payment reform, benefit redesign and the support of primary care and health-information technology to improve care coordination and reduce unnecessary services."

The full report is available on the Health Insurance Commissioner's office at www.ohic.ri.gov

rsalit@projo.com

Newstex ID: KRTB-0161-39303412