Blue Cross Blue Shield of Michigan appears to be on schedule to cut $300 million in overhead expenses by 2019, Crain's has learned from an internal Blue Cross document.
Since CEO Dan Loepp announced the company's three-year strategic business transformation project in November 2015, Blue Cross has reduced expenses by $106.5 million, according to a Loepp memo to staff Friday.
But uncertainty about what President-elect Donald Trump and a Republican-dominated Congress might do to alter insurance markets by repealing or changing the Affordable Care Act concerns top Blue Cross executives.
Sources told Crain's that executives briefed Loepp about the potential volatility of the Obamacare health insurance market. They are concerned that changes could be made early next year that could disrupt planned individual health insurance products for 2018 that will be due to the Michigan insurance commissioner's office in April.
Blue Cross has formed an internal workgroup to create contingency plans based on likely actions Congress could take. Executives are expected to develop various capital plan scenarios for the next four years that could include membership losses or gains, and profit margin projections for those scenarios.
For 2016, Blue Cross projects to lose $73 million in its individual business unit, according to one Blue Cross executive. Last year, Blue Cross lost $68 million in net income on its overall operations, which included the individual market.
Over the past several years, Blue Cross has been attempting to diversify its business lines — having some success by boosting revenue in Medicare Advantage managed care service line — to help subsidize its commercial individual and Medicare supplemental insurance lines, which have lost hundreds of millions of dollars in recent years.
Blue Cross of Michigan has averaged revenue of $9.7 billion with a three-year profit average of $162 million on all business lines from 2012 to 2014, according to a recent report by Chicago-based Fitch Ratings.
For 2017, however, Crain's has learned that employees are worried about further layoffs in the effort to reduce corporate overhead costs.
Over the past year, Blue Cross reduced staff by more than 50 employees, outsourcing some information technology and automating processes in benefits. Blue Cross and its related subsidiaries employ about 7,900 workers.
Moreover, Blue Cross has informed independent agents it will cut commissions next year to further reduce costs. While it is unclear how much agent commissions will be cut, some agents expressed displeasure with the move.
But experts believe that more individual business will come through the online Obamacare health insurance exchanges, at least for 2017, than through traditional agents.
In a previous interview, Andy Hetzel, vice president of corporate communications for Blue Cross, told Crain's that the state's largest health insurer had identified up to $180 million in savings opportunities in at least 151 areas.
In an email statement Friday, Hetzel said he wasn't familiar with Blue Cross's current financial numbers for the individual market. He said the 2016 financial audit and report will be made public in April.
"We remain very confident that we are tracking well against our business transformation goals and are on track to achieve our $300 million goal savings in 2018, which is when our effort is expected to conclude," Hetzel said.
However, Loepp's staff memo described the $106.5 million in cost savings as "SBT value captured to date." The three categories listed were administrative recurring, with savings of $104.9 million; administrative costs for SBT, $500,000; and cost avoidance of $1.1 million.
"Blue Cross on path to cut expenses by $300 million by 2019" originally appeared in Crain's Detroit Business.