On average, for-profit Blues companies performed better than nonprofits.
Large Blues companies generally reported higher earnings than smaller Blues that sold policies in a single state.
Cambia Health Solutions, CareFirst BlueCross BlueShield, Blue Cross of Kansas City and Premera Blue Cross posted stronger operating margins in 2024 compared with 2023.
Higher premiums and membership among CareFirst's fully insured large group and individual customers helped drive the company's operating income up 1.2%, according to its filing. The insurer exiting an unprofitable Medicaid managed care contract with the District of Columbia also contributed to positive results.
Blue Cross of Kansas City's operating margin was buoyed after the company recorded a $30.7 million premium deficiency reserve charge in 2023.
Blues companies could tighten contracts with providers, raise premiums or diversify their income streams to recover, said Debra Donahue, senior director of market analytics and online products at Mark Farrah Associates, who conducted the analysis.
“They can’t sustain this level of losses and therefore they will have to make changes,” she said.
Companies submitted complete 2024 financial statements to the National Association of Insurance Commissioners and California Department of Managed Health Care earlier this month. For 31 of the companies analyzed, Mark Farrah Associates included all of the subsidiaries affiliated with the company, even those that lacked a Blues license.
Rising prices for hospital services, utilization, inflation, demand for new gene therapies and other pharmaceuticals pressured Blues companies' finances last year, a Blue Cross Blue Shield Association spokesperson said in an email.
The lobby group spokesperson also said Blues companies are incomparable.
“Each company operates independently, making 'one size fits all' analysis of Blue plan financials difficult to account for nuances in each company’s business operations and accounting practices,” the BCBSA spokesperson said.
Blue Cross and Blue Shield of North Carolina is unable to verify the numbers Mark Farrah Associates reported, a spokesperson wrote in an email. Blue Shield of California said the listed operating margin is not accurate but declined to disclose their operating margin in 2024. Horizon Blue Cross and Blue Shield of New Jersey said it has not publicly reported earnings for one of its subsidiaries and that the analysis is inaccurate. A Horizon spokesperson said a -3.7% operating margin for 2024 is a more accurate reflection of the company's finances.
Only Blue Cross of Idaho, which suffered the highest operating loss of the 31 companies at 19.7%, made an executive available for an interview.
Rising medical expenses among the nonprofit insurance company's 78,600 individual Medicare Advantage enrollees ballooned the company's net losses to $465.3 million in 2024 from $14.2 million in 2023. The company issued a $251.9 million premium deficiency reserve charge, an accounting measure that predicts future losses, to help keep the business afloat last year. It also cut 10% of its workforce earlier this month.
Like other Blues, Blue Cross of Idaho has established a holding company, Gemstone Holdings, to diversify its investments.
The company hopes to ink new value-based care arrangements with providers and offload some Medicare Advantage risk, President and CEO Paul Zurlo said. Blue Cross of Idaho is also evaluating how artificial intelligence can streamline its customer service and claims processing operations, he said.
“We have the opportunity to make this a positive business and financially are doing everything we can to reset,” Zurlo said.
Blue Cross of Idaho holds reserves more than 300% higher than its medical claims costs, which led Fitch Ratings to maintain an A- rating for the company, said Brad Ellis, a senior director at the ratings agency.
Blue Cross of Idaho's situation is not unique. Blues companies tend to retain larger portions of capital compared with publicly traded competitors to help them survive difficult operating environments, Ellis said. By keeping more capital in hand, Blues companies can generate higher interest on their reserves, he said.
“Their operating performance may be more volatile, but they have the capital to absorb it,” Ellis said.
Blues companies also often take riskier chances on investments than publicly traded companies, said Shawn Bai, a senior analyst at S&P Global Ratings. In 2024, investment income windfalls helped boost the net income for companies contending with higher-than-expected Medicare Advantage and Medicaid spending, he said.
More than half of Blues companies included in the analysis, 17, reported positive net income margins in 2024. Still, average net income margins dropped to 0.9% last year from 2.5% in 2023, according to Mark Farrah Associates.
Membership also dropped. Across the Blues, enrollment fell nearly 1% to 168.5 million commercial, Medicare and Medicaid enrollees as of Dec. 31.
Elevance Health, which manages Blue Cross and Blue Shield plans in 14 states, lost the most members at 2.6 million. In earnings calls, the publicly traded company attributed membership losses to Medicaid redeterminations.
States pared back their Medicaid rolls after the formal COVID-19 public health emergency. The process impacted insurers' risk pools, which are their premium calculations based off enrollees' anticipated medical costs.
Companies have alleged that, as states dropped healthier people from their rolls, local officials did not raise managed care rates high enough to reflect costs incurred by more sickly, expensive remaining Medicaid enrollees.
“I would be curious to see what kind of pushback the health plans received last year for rates,” Donahue said. “If the states did not give them the increases they wanted, this could explain a lot of what’s going on here.”
The share of every premium dollar Blues companies spent on medical claims rose 3.2 percentage points to 90.9%. Insurers refer to the portion of premiums spent on member costs as their medical loss ratio, or MLR. Blue Cross of Wyoming posted the highest MLR of 98.1%, while Blue Cross Blue Shield of Louisiana posted the lowest at 85.7%.
Policyholders who lost Medicaid coverage and signed up for exchange plans pressured Blue companies MLRs, said Ari Gottlieb, an independent healthcare consultant who works with the Blues.
“There’s a business mix shift here that’s going on, with less Medicaid and more marketplace, which tends to run at a higher MLR,” Gottlieb said.
Correction: This article has been updated and corrected. Mark Farrah Associates’ analysis included 32 Blues plans but Modern Healthcare did not include Blue Cross of Kansas in its own calculations because the company does not publicly report earnings for its largest subsidiary. Cambia Health Solutions and Premera Blue Cross also posted stronger operating margins last year.
