Blue Cross posts lowest operating profits in 4 years amid COVID-19 pandemic

Blue Cross Blue Shield of Michigan experienced a 52 percent drop in operating profits in 2020, illustrating the challenges the state’s largest health insurer faced during the beginning of the COVID-19 pandemic.

The not-for-profit mutual health insurer reported $120 million in operating income last year, the lowest amount in four years, compared with $248 million in 2019.

But strong investment income gains of $724 million from company’s conservatively invested portfolio of stocks and bonds led to after-tax net income of $646 million on $30.1 billion in revenue, a 2.1 percent total margin. Blue Cross earned $603 million on its portfolio investments in 2019.

The Michigan Blues in 2020 also paid $192 million in federal taxes, according to the company’s consolidated business financial statement. But when state and local taxes are included, Blue Cross paid a total of $388 million for last year, the company said.

In 2019, the Michigan Blues posted net income of $818 million on revenue of $30.2 billion last year for a 2.7 percent margin. Last year, Blue Cross paid $26 million in federal taxes.

Previous years’ total margins, which include investment income, have been strong at 1.9 percent in 2018 and 4.4 percent in 2017, when the Michigan Blues posted record profits of $1.2 billion on consolidated revenue of $26.9 billion.

Net income figures include Blues’ various subsidiaries, investment income minus federal taxes, according to Blue Cross’ calculations based on generally accepted accounting principles.

But on operations over the past three years, Blue Cross’ operating income has slid 81 percent from $632 million in 2018 to $120 million in 2020. Still, officials say operating margins have averaged just under 1 percent the past decade.

“Since the beginning of the COVID-19 pandemic, Blue Cross and Blue Care Network have put the health of our members and customers at the forefront — ensuring no-cost services for COVID testing and treatment, providing free telemedicine services for months, and delivering premium refunds,” Daniel Loepp, Blue Cross’ president and CEO, said in a statement.

Paul Mozak, senior vice president for finance and chief risk officer, said Blue Cross was heavily impacted by the COVID-19 pandemic.

“Like all businesses, the Blue Cross Blue Shield of Michigan enterprise was confronted with unprecedented volatility and disruption,” Mozak said. “We were able to weather that disruption and uncertainty, in part, by keeping our health business focused squarely on supporting the needs of our members, our group customers, provider partners and communities.”

Mozak said Blue Cross’ financial contribution in response to the COVID-19 pandemic totaled $1.3 billion, including no-cost care ($35 million), no telemedicine copays ($65 million), no-cost testing ($39 million) and insurance premium refunds ($115 million).

Blue Cross kept financial stability by its “outstanding returns” with its investment portfolio, but also generated positive revenue through its health insurance business line and its subsidiary companies, Mozak said.

The Michigan Blues enjoyed profits from its managed care plan, Blue Care Network, its workers’ compensation company Accident Fund Insurance Co. of America, and a for-profit joint venture with Philadelphia-based AmeriHealth Caritas on Medicaid plans, which includes Blue Cross Complete, along with other subsidiaries.

For example, the for-profit subsidiary AF Group earned $17 million last year, down from $116 million in 2019. Based in Lansing, AF Group is one of the largest specialty writers of workers’ compensation insurance in the nation.

A Blue Cross spokesperson said the AF Group was impacted by the COVID-19 pandemic and the associated economic downturn, resulting in lower revenue in some segments and higher claims.

Based on its financial performance, Blue Cross contributed an additional $85 million to the Michigan Health Endowment Fund, a foundation created in 2013 by state legislation that allowed Blue Cross to convert into a nonprofit mutual health insurer from its designation as the state’s “insurer of last resort.”

Over the past five years, Blue Cross has contributed $610 million to the foundation toward its required corpus of $1.56 billion. Each year, the foundation doles out millions of dollars to worthy health care causes and organizations.

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