Blue Cross and Blue Shield of North Carolina Shows Continued Moderation in Profits

CHAPEL HILL, N.C. – Blue Cross and Blue Shield of North Carolina's (BCBSNC) net income for the nine months ending September 30, 2004 declined 16 percent, compared with the same period in 2003. The state's leading health insurer reported net income of $145.5 million for the period ending September 30, 2004, compared with net income of $173.1 million for the same period last year.
 
As planned, BCBSNC's net income as a percent of total revenue (net income ratio) continues to decline. For the nine months ending September 30, 2004, net income represents 5.7 percent of total revenue, or less than 6 cents of each dollar of revenue. This is a decrease of about 23 percent from the company's net income ratio of 7.4 percent for the same period last year.
 
"For the past year, we have given our customers lower premium increases than they have seen in quite a while," BCBSNC President and CEO Bob Greczyn said. "As we expected, this action has reduced our profits. We are pleased to be able to offer our customers competitive rates while still delivering top notch access, product choice and customer service."
 
BCBSNC's medical expenses as a percentage of premium (medical loss ratio) continue to increase. The medical loss ratio was 78.8 percent for the nine months ending September 30, 2004, compared with 77.0 percent for the same period in 2003. Claims expenses for the first nine months of 2004 increased to $1.8 billion, up from $1.7 billion in 2003, an 11 percent increase.
 
"Despite a medical trend that remains stubbornly high, our goal is to offer competitive premium increases to customers," said BCBSNC Chief Financial Officer Dan Glaser. "Because medical expenses are the primary factor affecting premium increases, we will continue to address underlying cost drivers with programs such as our recent generic drug initiative and comprehensive program to target obesity."
 
Blue Cross and Blue Shield of North Carolina's membership continues to grow, with the company adding 184,852 members served, including those served on behalf of other Blue Plans, since last September. Members served as of September 30, 2004, were nearly 3.1 million, an increase of 6.4 percent over September 30, 2003.
 
Investment activity, including net realized gains and net investment income, decreased $4.8 million from the same period in 2003, when the company recorded additional investment gains. Investment income for the nine-months ending September 30, 2004 was $37.7 million, compared with $42.5 million for the same period in 2003.
 
Operating expenses during the nine-month period ending September 30, 2004, increased $71 million compared with the same period in 2003 due to growth in business, and investments in technology and personnel that will allow BCBSNC to better serve its customers.
 
As a fully taxed corporation, BCBSNC's federal, state and local tax expenses (including income, premium and payroll taxes) were $119 million for the nine months ending September 30, 2004.
 

Blue Cross and Blue Shield of North Carolina
Consolidated Statements of Income (Unaudited)
For the Year to Date period ended September 30, 2004 and 2003

(dollars in thousands)
  20042003
RevenuesPremiums$2,345,238$2,156,627
Administrative fees and other revenue160,148138,245
Operating revenue2,505,3862,294,872
Net investment income32,67631,205
Net realized investment gains5,00711,267
Total investment revenue37,68342,472
Total revenue2,543,0692,337,344
ExpensesClaims and medical expenses1,848,2181,661,524
Operating expenses471,803401,019
Interest expense4,61814,538
Total expenses2,324,6392,077,081
IncomeIncome before income taxes218,430260,263
Income tax expense72,94287,160
Net income$145,488$173,103
Operating income1$185,365$232,329
Medical loss ratio278.8%77.0%
Operating expense ratio218.8%17.5%
Operating income ratio27.4%10.1%
Net income ratio25.7%7.4%
MembershipInsured1,109,4761,091,515
Self-funded1,429,2641,316,447
Total membership2,538,7402,407,962
BlueCard host553,651499,577
Total members served3,092,3912,907,539
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
 
 
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 nearly 3.1 million members, including approximately 550,000 served on behalf of other Blue Plans. The company offers its members the Blue ExtrasSM value–added programs, which provide discounts and information on a wide variety of health–related services at no additional cost. BCBSNC also offers life, dental, long–term care and disability insurance products. For 71 years, the company has served its customers by offering access to quality health care at a competitive price and has served the people of North Carolina through support of community organizations, programs and events that promote good health.
 
BCBSNC’s HMO and POS products have earned Excellent Accreditation from the National Committee for Quality Assurance (NCQA), an independent, not–for–profit organization dedicated to improving the quality of health care delivered to people everywhere. BCBSNC also has North Carolina’s first and only NCQA accredited PPO plan – Blue OptionsSM. 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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