Tennessee's largest health insurer improved its own financial health last year, boosting its income more than fivefold and swelling its reserves to nearly 50 percent above what the state requires.
BlueCross BlueShield of Tennessee, a nonprofit company based in Chattanooga, reported a net gain in earnings of $119.6 million in 2010, up from $21.6 million the previous year. The company narrowed its TennCare losses and reaped higher investment earnings to boost reserves to a record $1.4 billion at the end of last year.
BlueCross officials said profit margins remain well below industry averages and the growing reserves provide a cushion for bad times.
"Our earnings are reinvested in our company in initiatives that we believe help improve the overall health of Tennessee," BlueCross Communications Manager Roy Vaughn said.
But critics said Wednesday that such reserves should be used to help hold down health insurance premiums. BlueCross raised premiums last year by an average of 6.5 percent, four times the general inflation rate as measured by the government's Consumer Price Index.
"During a time when other Tennesseans were scraping to get by, it looks like BlueCross was doing very well last year," said Tony Garr, policy director for the Tennessee Health Care Campaign, a Nashville advocacy group. "I'm disappointed but not surprised by all the money they made. Despite the fact that it is a not-for-profit company, BlueCross still behaves like a for-profit company."
BlueCross of Tennessee, which provides health insurance for nearly 3 million people through its commercial, TennCare and Medicare supplement plans, is taxed and regulated in Tennessee the same as for-profit insurers such as Cigna Corp. and United Healthcare.
But Garr questioned the size of BlueCross' growing reserves and why state regulators are not doing more to regulate health insurance rates in Tennessee.
The Tennessee Department of Commerce and Insurance requires BlueCross to have reserves of $955 million based upon its size and amount of business. The company had $396 million more than what was required at the end of last year, according to BlueCross filings with the state insurance agency.
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BlueCross collected $3.4 billion in premiums last year and paid about 84 percent of it to physicians, hospitals and other medical providers. The company paid $240.4 million in taxes and contributed $7.7 million for community health initiatives, records show.
BlueCross spokeswoman Mary Danielson said the company's profit margin was 2.51 percent, well below the industry average of 3.5 percent. It was only a fraction of the 11.6 percent margin for medical device makers or the 16.5 percent for pharmaceutical companies, she said.
Nonetheless, state Rep. JoAnne Favors, D-Chattanooga, said BlueCross "needs to look at how they've been managing care."
"I don't have a problem with people making a profit, but be realistic and not be greedy," she said. "It's obvious they're making a tremendous profit even though they're controlling access to care for people."
Favors, a nurse and nursing administrator, said she is concerned that people are being pushed to use generic drugs when they shouldn't or that others must get preauthorization for needed procedures. She said she wants such issues studied this summer for possible legislation next year.
Under federal health care reform, Tennessee is getting an extra $1 million to strengthen regulatory oversight of insurers.
The federal law will require insurers to pay out at least 85 percent of large employers' premiums and 80 percent of individual subscribers for medical services.
Last year, BlueCross met the new standards for what are known as "medical loss ratios" for employer plans. But for individuals, the company paid out only 76.7 percent of premiums for medical care.
Danielson said BlueCross is working with its brokers to meet the standard as it takes effect this year.
According to its regulatory filings, BlueCross earned $154.7 million from commercial insured accounts during 2010. But the company lost $22 million from TennCare. In the previous year, BlueCross made only $80.9 million from its commercial business but lost $64.2 million from TennCare.
Vaughn said the recession proved the need for well-capitalized insurance companies. BlueCross reserves at the end of last year were equal to 65 days of operations, he said.
"We want to make sure we are able to continue to pay the providers and handle the claims that could result from a catastrophic illness or event," he said.
State Sen. Randy McNalley, chairman of the Finance, Ways and Means Committee of the Tennessee Senate, said building a nest egg for hard times could help BlueCross weather adverse conditions.
"I guess in this day and time it's a little hard to criticize people for having too much in reserves when we don't know exactly what the economy is going to do," he said.