Blue Cross RI execs concerned by overuse of health services after $50M loss

Blue Cross & Blue Shield of Rhode Island's headquarters in Providence.
Blue Cross & Blue Shield of Rhode Island's headquarters in Providence.

PROVIDENCE, R.I. (WPRI) – Blue Cross & Blue Shield of Rhode Island executives say they’re closely monitoring what caused a loss of $50 million during the first seven months of this year, with the most worrying factor being an unexpected increase in how often their members use medical services.

Mark Stewart, who replaced Michael Hudson as Blue Cross’s chief financial officer last month, said in an interview that the insurer’s business plan for 2016 had always expected a loss of $20 million from January through July, due to planned expenses and seasonal factors.

As for the unexpected $30 million loss beyond that, he said, $13 million was an early termination fee to switch pharmacy suppliers for future cost savings, and about $9 million was outstanding claims for 2015 coming in higher than forecast.

Stewart said the latter piece is attributable to the same surprise that accounts for the remainder of the $30 million loss: higher-than-expected utilization – in layman’s terms, Blue Cross beneficiaries seeking out more services from health providers than its actuaries thought they would.

Mark Stewart
Mark Stewart

“Although this miss definitely has management’s full attention, and we’re putting things in place to mitigate the miss and to maximize earnings as much as possible, I would categorize – because many of these things we can point to are, I would say, one-time in nature – that although it’s a concern, it’s not a driving concern, so that we would have to go to regulators or there’s a danger of … a failure of any sort,” Stewart said.

WPRI.com first reported last month that Blue Cross had lost $52 million in the six months through June 30. The insurer says the size of the loss eased to $50 million as of July 31.

Stewart said actual prices for medical services have not been growing above expectations, so the problem is limited to abnormally high utilization, something its former CEO had complained about in the past. Stewart said Blue Cross has begun putting new programs in place in recent months in an effort to stem the tide. Anecdotally, he said, he’s heard other Northeast insurers are experiencing the same phenomenon.

Stewart said the loss was not related to the implementation of President Obama’s Affordable Care Act; in fact, he said, its individual insurance plans sold on and off HealthSource RI were the one line of business that did not show a significant loss in the first half of 2016. Still, he acknowledged the law’s new regulations have added more “complexity” to the insurance business.

Blue Cross’s reserves stood at $231 million as of June 30, down 22% since the start of 2016. Stewart said the insurer aims for its risk-based capital to come in between 450% and 500%, and it’s currently at 409%, which he hopes will increase by the end of the year.

“Our capital reserves and surplus are strong, they’re adequate,” Stewart said, adding: “I think we got caught in a bit of a trend cycle, but that’s part of what we do, to minimize that trend.”

Blue Cross Rhode Island’s reserves remain in the bottom quartile among all Blue Cross plans nationally, but Stewart said the Chicago-based Blue Cross Blue Shield Association wouldn’t step in unless reserves fell as low as 200%, which he said his team would never allow. He also said he’s “not anticipating” that Blue Cross will need to go back to state regulators and seek higher rates “right now.”

“That would be a last resort,” he said.

Looking ahead, Stewart confirmed Blue Cross will seek to rejoin the state’s Medicaid plan as a managed-care provider the next time it goes out for bid; the insurer had quit the program in 2010. Blue Cross also plans to pursue the contract for the state employees health insurance plan, which it lost to UnitedHealthcare in 2004, he said.

More broadly, Stewart indicated Blue Cross’s current management is not considering merging with a larger out-of-state insurance group.

“There is no doubt we believe that being a local independent Blues plan is the right solution for Rhode Island,” he said. “It allows us to get very close to the community. Our programs we’ve put in place are geared toward Rhode Islanders, anything from our behavioral-health programs through medical planning and medical cost initiatives.”

“Is it a small state? Yes. Is there limited opportunities with the number of members? Yes,” he continued. “That is why, though, we’ve contracted with the likes of Dell and some of our other vendor partners, is to really capitalize on their scale to help us bring forward different strategic initiatives and investments that we can make in our core infrastructure, and bring a knowledge base that they may have from experiences across the nation to us, so that we can bring the best service and capitalizes to the market.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes The Saturday Morning Post and hosts Executive Suite. Follow him on Twitter, Facebook and Instagram

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