Blue Cross and Blue Shield of North Carolina Reports Year-End 2005 Financial Results

CHAPEL HILL,  N.C. – For 2005, the net income of Blue Cross and Blue Shield of North Carolina (BCBSNC) continued to fall in proportion to company revenues. BCBSNC today reported that its 2005 net income represented 4.4 percent of revenue, or less than 5 cents for every dollar of revenue. This is a 4 percent decrease in net income ratio over 2004 and approximately a 30 percent decrease over 2003.
 
The latest results represent the second consecutive year in which the company’s year ’to’ date net income ratio has been lower than the same period results for the previous year. These results are within the company’s previously stated current target range of 3.5 to 4.5 percent.
 
While its net income ratio continued to decline, the company’s net income was up slightly. The company reported consolidated net income of $167.6 million for 2005. This was an increase of 7 percent from the net income of $155.9 million for 2004. As a fully taxed corporation, BCBSNC’s federal, state and local tax expense for the year was $142.7 million.
 
 
"As other companies in our industry continue to report strong profits, we delivered a reduced net income ratio for the second year in a row, just as we had planned," said BCBSNC Chief Financial Officer Dan Glaser. "Our financial results were within our target range and represent our continued ability to meet our customers’ needs and remain a financially stable health insurer and employer."
 
The company’s reserves have been substantially flat for the past three years. The reserves equaled 3.8 months of claims and administrative expenses in 2005, compared to 3.7 months in 2003 and 2004. At the company’s current net income ratio, months in reserves are likely to continue to remain relatively flat. Current reserves are below the company’s 20-year average of 4.0 months.
 
 
President and CEO Bob Greczyn said that as a fiscally sound, North Carolina–based company, BCBSNC was committed to taking long–term steps to improve the health of its members and the communities it serves.
 
"Our company’s financial stability has afforded us the opportunity to invest in initiatives for our members and our state that will bear long-term results in moderating health care costs, promoting preventive care, increasing health care access and improving the quality and efficiency of the health care system,” Greczyn said. "We believe these kinds of forward–looking investments are important in our role as North Carolina’s leading health insurer."
 
Initiatives and partnerships recently launched by the company include its Healthy Lifestyle ChoicesSM program to help combat excessive weight among its members; its electronic prescription program to spur accuracy in drug dispensing; its patient safety initiative with North Carolina hospitals; its renewed generic drug copayment waiver program; and its Fit Together partnership with the N.C. Health and Wellness Trust Fund to promote community efforts to increase physical activity, nutrition and tobacco avoidance.
 
BCBSNC’s claims and medical expenses increased by approximately $280 million or 11 percent over 2004, primarily due to medical cost trend and membership growth. Medical costs rose primarily because of increases in professional, outpatient facility and drug expenses.
 
BCBSNC’s operating costs were up by about 17 percent compared to the same period in 2004, due to the continued growth in business, which led the company to hire 540 employees last year to handle customer needs. In addition, the company invested in technology and projects to benefit the company’s growing membership. The operating expenses also include BCBSNC’s partnerships and initiatives related to the accessibility, quality and safety of the health care system for its members and North Carolinians as a whole.
 
BCBSNC’s total revenue as of December 31, 2005, was nearly $3.8 billion, up 12 percent as compared to 2004. The company’s medical loss ratio was 80.1 percent for 2005, as compared to 80.2 percent for 2004. BCBSNC has added more than 180,000 members since December 31, 2004, and now serves almost 3.3 million people, an increase of nearly 800,000 members over the past five years. The company remains one of the fastest growing Blue Plans in the nation.
Blue Cross and Blue Shield of North Carolina Consolidated Statements of Income (Unaudited) For the Year-to-Date period ended December 31, 2005 and 2004
(dollars in thousands)  
   
 20052004
Revenues:  
Premiums$ 3,503,474$ 3,149,964
Administrative fees and other revenue$ + 257,510$ + 215,405
Operating revenue$ 3,760,984
$ 3,365,369
   
Net investment income$ 60,042$ 49,342
Net realized investment gains$ 1,782$ 8,568
Total investment revenue$ 61,824$ 57,910
   
Total Revenue$ 3,822,808$ 3,423,279
   
Expenses:  
Claims and medical expenses$ 2,806,391$ 2,525,254
Operating expenses$ 771,722$ 661,638
Interest expense$ + 4,731$ + 5,950
Total Expenses$ 3,582,844$ 3,192,842
   
Income before income taxes$ 239,964$ 230,437
   
Income tax expense$ 72,412$ 74,500
   
Net income$ 167,552$ 155,937
   
Operating income1$ 182,871$ 178,477
   
Medical loss ratio280.1%80.2%
Operating expense ratio220.5%19.7%
Operating income ratio24.9%5.3%
Net income ratio24.4%4.6%
   
1 Pretax operating revenue less claims and medical expenses and operating expenses (excluding interest expense).
2 Ratios calculated as a percentage of premiums for medical loss ratio, a percentage of operating revenues for operating income and operating expense ratios and a percentage of total revenue for net income ratio.
Note: Certain prior year amounts have been reclassified to conform with current year presentation.
   
Membership  
Insured1,165,130 1,127,318
Self-funded1,485,2111,432,824
Total membership 2,650,3412,560,142
BlueCard host639,107548,773
Total members served3,289,4483,108,915

*Membership includes BlueCard® members, who live in North Carolina, but have coverage written by Blue Cross and Blue Shield Plans in other states.
 
 
 
About Blue Cross and Blue Shield of North Carolina:
Blue Cross and Blue Shield of North Carolina is a leader in delivering innovative health care products, services and information to more than 3.3 million members, including approximately 638,000 served on behalf of other Blue Plans. For 72 years, the company has served its customers by offering health insurance at a competitive price and has served the people of North Carolina through support of community organizations, programs and events that promote good health. Blue Cross and Blue Shield of North Carolina is an independent licensee of the Blue Cross and Blue Shield Association. Access BCBSNC online at bcbsnc.com.
 
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