Heath Care Service Corporation On Pace For Another $1 Billion In Profits in 2011

             (Crain’s) — The parent of Blue Cross & Blue Shield of Illinois is poised to post $1 billion in profits for 2011, thesecond consecutive year the insurer would cross that benchmark, which is likely to raise questions anew about spiraling medical costs.


Health Care Service Corp. net income totaled $918.0 million for the first three quarters of 2011, virtually unchanged


from the $918.4 million recorded during the first three quarters of 2010, according to the company’s third-quarter


statement. Last year, the Chicago-based company’s annual profit more than doubled to $1.1 billion from $514.5


million in 2009. Health Care Service, a mutual company owned by its policyholders, dominates the Illinois market


for health insurance, writing nearly 55% of health maintenance and preferred provider plans in the state.


Nationwide, consumer advocates and some government officials continue to target skyrocketing premiums and


profits of both non-profit and for-profit health insurers. Last month, for example, New York insurance regulators put


pressure on Minnetonka, Minn.-based UnitedHealth Group Inc., the largest health insurer in New York, to agree to


increased disclosure of information used to set premiums.


“Premium revenues have been well above payments for medical claims, with profit margins at historic highs,”


according to a report issued earlier this month by the Commonwealth Fund, a New York-based health care




Between 2003 and 2010, the annual average health insurance premium for a family of four shot up 54%, to


$14,703, the report found. Illinois last year had the sixth-highest average premium in the country for a family of


four, the report found.


Insurance companies are “not producing medical care. They’re writing a check for that,” said Karen Davis, the


foundation’s president.


A spokesman for Health Care Service blames rapidly rising fees by health care providers for escalating insurance




“The focus needs to be on all the factors that are driving premium increases — the soaring prices for medical


services, changes in the covered population and utilization,” the spokesman said in an email.


Blue Cross earlier this month said 2012 renewal rates will range from a decrease of 3.5% to 6.5% for small groups


to a 6% increase for large groups and an 8.9% increase for individuals.


(Read Crain’s premium content: “Chicago-area health insurance premiums to rise more slowly in 2012.”


The hefty HCSC 2011 profit comes despite a 28% decline in net income to nearly $212 million during the third


quarter from about $295 million the year before.


Health Care Service’s revenue dipped less than 1% to nearly $5 billion during the third quarter from the year-earlier


period. Meanwhile, payments for medical benefits rose by about the same percentage, to $4.2 billion, from a year




The company “has seen lower utilization (of health insurance), which may result in higher-than-anticipated earnings


growth,” the spokesman said.


The third-quarter financial performance was hurt by slightly higher administrative expenses and substantially lower


gains from investments.


Health Care Service said it no longer assumes the company will meet a new federal requirement that 85% of


premium revenue be spent on medical benefits and on activities to improve health care.


In the second quarter, Health Care Service said “the assumption” was that the company would exceed the 85%


threshold this year, even though the application of the new regulation was uncertain.


But the company dropped that assumption from its third-quarter statement.


Nonetheless, the spokesman said the company will meet the 85% threshold by year’s end.


Failing to meet that requirement