Nonprofit Blue Cross Blue Shield plans are sitting on piles of cash – and consumers might see “premium holidays” or lower-than-expected increases as a result, a Wall Street analyst says in a report Wednesday.
Nationwide, 33 nonprofit plans have almost $29 billion in capital reserves, according to analyst Carl McDonald of Citi Investment Research & Analysis. That’s up from $18 billion at the end of 2008.
While that money is meant as a rainy day cushion – in case the plans face large medical expenses or need to invest in new capital, such as information systems – McDonald says the capital is more than enough to cover those contingencies.
There’s more good news for the industry: Blues plans, just like their for-profit competitors, have been able to set their premium prices above underlying inflation during the past year – and have seen lower-than-expected use of medical services by policyholders. As a result, net profit margins for the Blues were 4.8 percent in the first quarter, the highest reported since 2005, his report says.
“The peak level of profitability that the industry is enjoying right now … (has) likely resulted in dozens of conversations in Blue Cross boardrooms across the county about how to deal with their unexpected windfall,” writes McDonald.
Earlier this month, Blue Shield of California announced it would cap its profits at 2 percent and issue rebates to policyholders. While McDonald doesn’t expect many other plans to do the same, he says “premium holidays” and other types of givebacks are possible. That’s particularly true in areas where Blues plans look like they won’t meet the new federal requirement of spending at least 80 percent of premium revenue on medical care and quality improvements.
Blues plans may also come in with more “aggressive premium pricing” – analyst-speak for rates set lower than expected medical cost trends – in several states, including Arizona, North Carolina, Illinois and Texas, he says.