Blue Cross and Blue Shield of North Carolina reported Wednesday that "record-high" medical expenses and lower premiums contributed to a large drop in net income in 2019.
Claims and medical expenses for fully insured members reached $7.3 billion last year, a 7.4% increase over 2018. The N.C. Blues affiliate said price increases for injectable drugs and infusions, specialty drugs, and treatments for chronic conditions, including hemophilia and anemia, drove the higher medical costs, which translated to about $5,600 per fully insured member.
Those costs squeezed net income, which fell 28.1% to $492 million for the year ended Dec. 31.
Mitch Perry, Blue Cross NC's chief financial officer, said the medical expenses were generally consistent with recent trends and not unexpected. He added that the not-for-profit insurer is "intently focused on addressing these costs" and is making progress. The insurer didn't report medical costs for its self-insured employer groups, but Perry said trends weren't dramatically different from the fully insured members.
Last year, Blue Cross NC saved about $350 million through medical and operating expense initiatives. It is by negotiating lower prices for prescription drug and lab services and striking up value-based agreements with hospitals. The insurer's value-based payment model Blue Premier, launched in January 2019, now includes seven health systems, Perry said. Blue Cross NC is also reducing operating expenses by reducing its technology infrastructure costs, re-negotiating vendor contracts and reducing its facility footprint, it said.
The company's former CEO Dr. Patrick Conway stepped down in September 2019 amid backlash over his arrest in an alcohol-fueled car accident and criticism over how the insurer handled the situation. Perry said financial results were not affected by the incident. Conway received a little more than $4 million in total compensation in 2019, a 12.1% increase over his 2018 pay, according to the insurer's supplemental compensation filing.
Results were, however, influenced by the insurer's decision to lower premiums in 2019. Though the company grew membership about 2.4% to 3.8 million, lower premiums kept its annual revenue flat at $9.9 billion.
Perry said the flat top line is "an indication of the progress we are making toward affordability."
The Blues insurer said results in its ACA marketplace business segment were positive, though margins were about half what they were in 2018. The company attributed the lower margin to premium decreases and volatility, as the size of the ACA individual market has shrunk. Blue Cross NC reduced average individual exchange plan premiums by 4.1% in 2019 and 5.5% in 2020.
Perry noted that the spreading coronavirus could introduce further volatility to the N.C. healthcare market and is already affecting healthcare costs. The insurer is monitoring developments and posting information about the virus on its website to keep members informed, he said. It will cover doctor visits to screen coronavirus the same as any other doctor's visit, subject to a member's specific health plan, Perry explained.
In a separate news release published Wednesday, Blue Cross NC said it is improving commerical members' access to doctors and medications during the coronavirus threat by expanding access to telehealth and expediting approval for acute care, including hospitalization, post-acute care and medical equipment needed at home. It is also waiving early medication refill limits for 30-day prescription maintenance medications so patients will have a month's worth of drugs on hand. These changes will take effect March 6 and remain in effect for a 30-day period.
"By taking these steps, we are helping our members stay home if need be with the goal of keeping them and others well," said Dr. Von Nguyen, the insurer's vice president of clinical operations and innovations.