Health Care Service Corp., the parent of the largest insurer in Illinois, returned to profitability after two years of annual losses. But last year's rebound came at the expense of its individual customers. To reduce its costs, the Blue Cross parent hiked premiums and limited the scope of doctors and hospitals patients could see at discounted prices, known as in-network providers.
"Clearly the bleeding has stopped," said Neal Freedman, a New York-based director at S&P Global Ratings. "Now the question is what will become the new normal for this company."
That's a question the entire healthcare industry is facing as the House Republicans work to overhaul the Affordable Care Act, the 2010 federal law that helped more than 20 million people gain coverage under President Barack Obama. Chicago-based HCSC was among insurers nationwide that took a risk—and lost big—selling plans on the health insurance exchanges created under the ACA, known as Obamacare. Enrollees were far sicker and expensive than projected, prompting many insurers to bail out of the program. HCSC still participates in the five states where it sells Blue Cross plans, including Illinois.
HCSC is the fourth-largest insurer in the nation by revenue and membership and is the market leader where it operates. In the company's new annual financial statement, which details the majority of HCSC's business, including employers and individual consumers who buy plans on and off the exchange, net income totaled $106.3 million in 2016. That follows a $65.9 million loss in 2015 and a $281.9 million loss in 2014.
Still, the 2016 profit is just a tenth of the company's $1.01 billion net income in 2012, financial records show.
Last year, revenue for the majority of the HCSC's business dipped nearly 3%, to $30.3 billion. The results came as healthcare membership declined 9% year-over-year, to 8.8 million in 2016.
Overall, including HCSC's life insurance business, the company has 14.9 million members and more than $34 billion in revenue (both are relatively flat from 2015). Total net income jumped to $85 million in 2016 from a $222 million loss the year before.
What made HCSC profitable last year? Carl McDonald, the company's divisional senior vice president of treasury and business development, said big changes to individual policies helped steer the financial improvement. They included hiking prices and pushing narrow network HMO plans, where consumers get deeper discounts in exchange for having access to a smaller pool of doctors and hospitals. In Illinois, that caused an uproar after many popular, but expensive academic medical centers like Northwestern Medicine weren't included in the network.
Despite the moves, McDonald said, HCSC lost about $500 million on individual policyholders last year. A "very significant" portion of that came from plans sold on the exchange, he said. Still, that's better than the $1.5 billion HCSC lost on this business in 2015. "It's still a very unprofitable product," McDonald said.
This year, the company wants to bolster businesses that focus on individual members and government programs like Medicaid. "We still have a significant amount of work to do," McDonald said.
Freedman at S&P Global—and millions of Blue Cross customers—will be watching closely.
"Blue Cross parent stops the bleeding, but at what cost?" originally appeared on Crain's Chicago Business.