• Net income margin down for third year in a row, but within BCBSNC target range 
  • Consolidated net income up because of higher investment income and lower taxes 
  • Income from health insurance business (operating income) down 
  • Months in reserves remained flat 
  • Increased percentage of premiums went to medical expenses 

CHAPEL HILL, N.C. – Blue Cross and Blue Shield of North Carolina (BCBSNC) today reported that its net income margin for 2006 was 4.3 percent. This was within the company’s target net income margin of 3.5 to 4.5 percent and marked the third year in a row that its year-end margin had declined.

BCBSNC reported consolidated net income of $189.4 million for 2006, a 13 percent increase over the $167.6 million it reported for 2005. The increase was largely the result of higher investment income and lower taxes. BCBSNC net income represents just over 4 cents per every dollar of revenue.

BCBSNC’s income from its health insurance business declined in 2006. Its operating income of $160.4 million was an approximately 12 percent decrease from the $182.9 million it reported for 2005. The company’s operating income ratio was 3.7 percent for 2006, down from 4.8 percent from the previous year.

The decline in operating income came as the company spent a greater percentage of premiums on medical costs. BCBSNC’s medical loss ratio was 82.2 percent for the year, compared to 79.2 percent for 2005.

“Although our operating income declined, we met our net income margin and membership growth targets,” said BCBSNC Chief Financial Officer Dan Glaser. “We continue to succeed in the marketplace by offering the products and services consumers want, at competitive prices. Our financial stability provides assurance that we will be here for our members.”

BCBSNC spent nearly $3.3 billion on claims and medical expenses in 2006, a 17.1 percent increase over the approximately $2.8 billion it spent in 2005. BCBSNC’s group underwritten medical trend for the year was 11 percent, compared to 7 percent for 2005. The increase in medical costs was driven by factors that included higher costs for neck and back surgery, coronary artery disease and diagnostic imaging services, as well as the impact of the generic copayment waiver that the company implemented for most of last year.

BCBSNC’s statutory reserves as of December 31, 2006 represented 3.7 months of claims and administrative expense, flat compared to the three previous years.

BCBSNC grew by about 146,000 members served in 2006 and now serves more than 3.4 million people. It has added more than 925,000 customers over the last five years.

For 2006, BCBSNC recorded $4.4 billion in total revenues, a 15 percent increase over the $3.8 billion for the previous year. Revenues were driven by increased membership and the need to cover increased medical costs. BCBSNC, which is a fully taxed company, incurred $140 million in federal, state and local taxes during 2006.

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 3.4 million members, including approximately 749,000 served on behalf of other Blue Plans. For 73 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.