CHAPEL HILL, N.C. — Blue Cross and Blue Shield of North Carolina (BCBSNC), today reported increases in membership, revenue and net income for 2003. Medical costs for the year rose less than projected, resulting in an unusually profitable year for BCBSNC. The health insurance industry as a whole saw record profits in 2003.
For the year ending December 31, 2003, BCBSNC reported net income of $196.3 million compared to net income of $76.1 million for 2002. This increase is primarily due to 2003 medical costs that were lower—than—expected as a result of a more moderate medical trend.
BCBSNC’s net income represents 6.2 percent of total revenue (see chart below) or just over 6 cents of profit for every dollar of total revenue. Excluding the impact of an adjustment for claims paid for 2002 that were less than estimated and the effect of gains on investments, BCBSNC’s net income ratio for 2003 is 5.1 percent.
“We had a year that was financially exceptional, but not repeatable,” BCBSNC President and CEO Bob Greczyn said. “Just as we expected, as the year went on, we saw medical costs increase and profitability decrease compared to the unusual results we saw early in the year. We expect this trend to continue into 2004.”
BCBSNC made a decision early in 2003 to file for lower premium increases in 2003 and 2004 to reflect moderation in medical trend. The company’s year—end results reflect that decision.
Total revenue for 2003 increased to $3.2 billion, up 8.6 percent from 2002. BCBSNC added 191,041 members in 2003 (including those members served on behalf of other Blue Plans) — a 7 percent increase over year-end 2002 — which contributed to this increase in revenue.
BCBSNC’s operating expense ratio was 18.6 percent in 2003, compared to 17.2 percent in 2002. This increase was due to several factors including investments in technology projects and an increase in broker commissions stemming from growth in enrollment. Excluding these items, base operating expenses for the year were nearly flat compared to 2002.
BCBSNC’s medical costs as a percentage of premiums (medical loss ratio) was 77.9 percent in 2003, down from 83.0 percent in 2002. This decrease reflects a lower—than—anticipated medical trend — including the impact of highly used prescription drugs moving to generic and over—the—counter status — and claims paid for 2002 that were less than originally estimated at December 31, 2002.
“We would like to see the medical trend continue to soften because a lower trend allows us to reduce premium increases for our customers,” Senior Vice President and Chief Financial Officer Dan Glaser said. “We expect to continue to be financially strong, but year-end results in 2004 will not be as strong as they were in 2003.”
At year-end, BCBSNC’s statutory reserves represent 3.7 months of claims and operating expenses, which positions the company to be financially sound. The company has $578 in statutory reserves for the protection and benefit of each insured member. While BCBSNC’s membership has increased since 2000, the company’s months in reserves has declined and remains below the 2000 level.
“2003 was a noteworthy year for our company for many reasons beyond our financial performance,” Greczyn said. “We had extraordinary accomplishments in terms of product development, community support and philanthropy and our commitments to our customers and employees.”
In October, BCBSNC introduced its consumer-driven health plan, The Freedom AccountSM, to an enthusiastic reception by employers and benefit consultants. The company and its employees donated over $600,000 to the United Way in 2003 and were recognized with the United Way’s top two statewide awards — the Corporate Spirit and Employee Spirit awards. BCBSNC received Carolina Parent’s “Family Friendly Award” and won the Triangle Business Journal’s “Platinum Rule Award” for the third year in a row. In November, BCBSNC held its first State of Preventive Health Summit and issued the State of Preventive Health Report.
Blue Cross and Blue Shield of North Carolina Consolidated Statements of Income (Unaudited) For the Years Ended December 31, 2003 and 2002
(dollars in thousands)  
Premiums$ 2,911,095$ 2,736,819
Administrative fees and other revenue$ + 182,762$ + 151,080
Operating revenue$ 3,093,857$ 2,887,889
Net investment income$ 43,005$ 41,038
Net realized investment gains$ + 17,041$ - 25,896
Total investment revenue$ 60,046$ 15,142
Total Revenue$ 3,153,903$ 2,903,041
Claims and medical expenses$ 2,266,694$ 2,270,348
Operating expenses$ 576,282$ 497,990
Interest expense$ +16,213$ + 12,353
Total Expenses$ 2,859,189$ 2,780,691
Income before income taxes$ 294,714$ 122,350
Income tax expense$ 98,430$ 46,279
Net income$ 196,284$ 76,071
Operating income1$ 250,881$ 119,561
Medical loss ratio277.9%83.0%
Operating expense ratio218.6%17.2%
Operating income ratio28.1%4.1%
Net income ratio26.2%2.6%
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.
Total membership2,424,1592,297,565
BlueCard host500,212435,765
Total members served2,924,3712,733,330
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 approximately 2.9 million members, including approximately 500,000 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 70 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