“We're very proud of the growth that we've had over the course of 2023,” HCSC Chief Financial Officer James Walsh said in an interview with Crain's. “Growth is a key strategic pillar.”
A strong financial outlook is important for HCSC this year as it gears up to complete a $3.3 billion acquisition of Cigna Group’s Medicare assets. The deal, expected to close early next year, would be HCSC’s largest in its history, and is intended to enhance its capabilities and reach in the growing Medicare Advantage segment.
Across all plan types, HCSC covers nearly 23 million individuals. Aside from Illinois, HCSC owns and operates Blues plans in Montana, New Mexico, Oklahoma and Texas. HCSC classifies itself as a "mutual legal reserve company," which means it is customer-owned and operates like a nonprofit.
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Like other health insurance companies, HCSC’s benefit expenses rose last year by 12% to more than $48 billion. As the COVID-19 pandemic waned, Americans started returning to the healthcare system for routine and elective care, bumping up utilization — and the need for payments from insurers like HCSC.
Combine that with the fact that hospitals and other healthcare providers are still recovering from the worst of the pandemic, which brought labor shortages and inflation, providers are renegotiating contracts with insurance companies. And they are often seeking higher reimbursements as the cost of delivering care continues to rise. National health expenditures grew by about 7.5% in 2023, faster than gross domestic product growth of 6.1%, according to the Centers for Medicare & Medicaid Services.
A particular recent pain point for insurers, including HCSC, is paying for new, high-cost gene therapy medications, as well as GLP-1 drugs, like Ozempic, Mounjaro and Wegovy, said Laura Minzer, president of the Illinois Life & Health Insurance Council, a commercial health insurance plan industry group.
“The amount of your premium dollar being absorbed into prescription drug spending is increasing more and more,” she said.
HCSC saw a 70% increase in the utilization of GLP-1 drugs in 2023, Walsh said. Even still, adding new members, particularly in Texas where HCSC is currently expanding its corporate presence, helped boost premium revenues and cover drug and other costs in 2023.
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From 2021 through the first quarter of 2024, HCSC says it added 2.5 million members across all five of its states, reflecting a 12% increase. Part of that growth was fueled by the 2022 acquisition of Trustmark Health Benefits, now known as Luminare Health, Walsh said.
While HCSC is adding members, it’s also been grappling with Medicaid redeterminations, the nationwide dismantling of COVID-19-era policies that allowed Americans to stay on the government-sponsored plans regardless of income eligibility. As the eligibility process resumed last year, Walsh said about 150,000 members lost eligibility. As some were forced to leave Medicaid plans, HCSC’s total Medicaid membership dropped slightly.
The risk is losing those members for good. Walsh wouldn’t disclose how many Medicaid plan holders returned to HCSC for other types of plans but confirmed some did come back. In Illinois specifically, Walsh said the number of Medicaid enrollees remained stable as new members offset those being removed.
Other revenue growth tactics included plan rate hikes. The company declined to share specific rate increases, but Walsh described them as being “small, fractional” increases.
“When we do our pricing, we try to be prudent,” Walsh said. “We have had rate increases, but they've really been to try to address the medical trends.”
Rate increases will soon come under scrutiny, at least in Illinois, where local lawmakers recently passed two bills as part of Gov. J.B. Pritzker’s Healthcare Protection Act, which takes aim at insurance companies’ “predatory practices.”
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Among the legislation is a requirement that insurance premiums be “actuarially sound and reasonable” and a provision that insurance companies receive approval from the Illinois Department of Insurance before raising prices on large group plans. Other pieces of the legislation ban prior authorization for mental health treatment and step therapy policies for prescription drugs.
Walsh declined to comment on how the company is reacting to the new legislation and an HCSC spokeswoman didn't answer further questions about the issue.
Looking ahead, HCSC intends to grow its business with the Cigna deal, though it will have to contend with nationwide pressures on Medicare Advantage plans. Walsh said adding the assets is estimated to bring in about $12 billion in revenue for HCSC, which would boost total revenue to about $70 billion. But HCSC’s publicly traded peers, like UnitedHealth Group and Humana, have warned of recent profit challenges in the sector.
Insurers are facing higher medical expenses, federal policies to constrain spending and other looming payment cuts, which suggest the Medicare Advantage market may become less lucrative.
Walsh acknowledges those challenges but said HCSC is moving forward on the deal because it would make the company a top 10 player in the senior insurance market, a fast-growing demographic as the country’s population ages.
“Although there may be some headwinds in the business today . . . this is a strategic opportunity for us,” Walsh said. “The business opportunity is there on a long-term basis.”
This story first appeared in Crain's Chicago Business.
