Fitch: Blue Cross Blue Shield companies' financial performance improves 'significantly'

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Overall, the companies' net income increased by $5.2 billion in the first half of 2017.

The financial performance of Blue Cross and Blue Shield companies improved “significantly” in the first half of 2017, according to Fitch Ratings.

For the 34 Blues companies that the ratings agency examined, their aggregate first-half 2017 underwriting gain was $5.1 billion greater than during the first six months of 2016. Premium growth exceeded benefit growth by about $2.3 billion, and administrative expenses declined on an absolute basis by roughly $2.8 billion.

The companies’ capital and surplus also increased 11% from the end of 2016—reflecting strong earnings—while debt levels declined moderately.

Major contributors to these results include premium rate increases, operational changes that tightened enrollment and underwriting practices on the Affordable Care Act marketplaces, lower-than-anticipated utilization trends and the temporary suspension of the ACA's health insurer fee.

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Fitch also noted that the financial improvement was broad-based, with all but one of the companies—Noridian Mutual Insurance Company—reporting higher net profits than they had for the same period in 2016. This builds upon a trend that began in 2016, in which 24 of the 34 Blues companies reported higher net profits than in the prior year.

Overall, the companies' net income increased by $5.2 billion in the first half of 2017 relative to the same point in 2016. Those companies that contributed significantly to that gain include:

  • Health Care Service Corp. ($1.3 billion increase)
  • Highmark ($689 million increase)
  • Blue Cross Blue Shield of Michigan ($395 million increase)
  • Blue Cross and Blue Shield of North Carolina ($334 million increase)
  • Blue Shield of California ($307 million increase)

However, it’s not all positive news for the Blues. Fitch believes that these companies have more exposure than nationally focused health insurers to financial and operational uncertainty tied to efforts to repeal or modify the ACA.

Indeed, while Republicans in Congress has repeatedly failed to repeal the ACA through legislation, the Trump administration has begun to chip away at the law’s regulatory foundations. Such moves could have a destabilizing effect on the individual market, where insurers are on track to reach pre-ACA levels of profitability.