Rachel Cohrs: Welcome to Modern Healthcare's Beyond the Byline, where we take you beyond the byline, to better understand the news and how it's reported. I'm Rachel Cohrs, Modern Healthcare's DC Politics and Policy Reporter. I have the privilege of speaking with Insurance Reporter, Shelby Livingston today about a data analysis she did on insurer profits during COVID-19. Thanks for coming on Shelby.
Shelby Livingston: Thanks for having me.
Rachel Cohrs: I just want to open up and give you a chance to explain your thinking in exploring the story that we're going to be talking about today, which is a data analysis on insurer's financial situations, specifically focusing on the Blues insurers and how they're faring during the pandemic. Tell me, why did you decide to write this story?
Shelby Livingston: Sure. What we did was, we went through dozens of Blue Cross Blue Shield company financial reports for the first half of this year. We did that because we normally report a lot on publicly-traded health insurers, like United Healthcare, Cigna, Humana, Anthem, and all of their financial reports are readily available. But, it's harder to report on privately- held companies. They're not required to put out their financial information every quarter, but it was, we wanted to know how they fared during the pandemic. All of the publicly- traded ones made a lot of profits during the pandemic, because they were paying less on medical care, as their patients weren't going to the doctor. So, we wanted to see if that was the case for all insurers. We looked at Blues because they cover so many Americans, it's more than 100 million. We just wanted to know if the trends that we're seeing in the for-profit, publicly-traded insurers extended to these mostly not-for-profit companies as well.
Rachel Cohrs: If they're not publicly traded companies, then what data were you using to do this analysis and what were you looking for?
Shelby Livingston: There's a database, maintained by the National Association of Insurance Commissioners, the NAIC, and that's where a bunch of statutory financial reports are filed. Now, many states require health insurers to report their financials, but they're not released publicly. But they are lodged at this NAIC, so you can go in and download them. What we did was, we downloaded hundreds of filings. The challenge is that these companies don't report one neat, consolidated filing that shows what all of their subsidiaries did for the quarter. So, what you have to do is, you have to download a filing for each subsidiary, and then you have to aggregate them on your own, in Excel, manually, and it's time-consuming and you have to be very meticulous about it, so you don't introduce errors.
Shelby Livingston: It's also a challenge, because not all the filings are uniform. Some are incomplete. Some states don't even require their insurers to report quarterly. Horizon Blue Cross Blue Shield, New Jersey, wasn't required to report except for one segment of its company. California too, has its own rules, so for that company, we ended up using a different data set from the California Department of Managed Health Care.
Rachel Cohrs: How do you go about responsibly communicating conclusions that you're drawing from this data, if it isn't a complete or a perfect data set?
Shelby Livingston: I think you just need to be very transparent about the limitations of the data. Put that in the story. Put that on the charts. You need to explain what you excluded. For us, we wanted to look at just health insurance and a lot of these companies have other subsidiaries. They have Workers' Compensation companies sometimes, they have life insurance. We excluded those. We also excluded subsidiaries with less than 1000 in revenue, just to make it more manageable. You just have to make a note of which states do not require their companies to report, and you have to look into anything that looks like an outlier.
Shelby Livingston: We worked very closely with Blue Cross Blue Shield companies. I reached out to verify these numbers, especially of the companies that I was going to write specifically about in this story. I wanted to make sure all the data was as accurate as possible. I ran these numbers by these companies. Often, I sent the exact reports as attachments to show them what I was working with. You just have to be very transparent about it.
Rachel Cohrs: After all this data cleaning and processing, what did you find?
Shelby Livingston: We found that most of the Blue Cross Blue Shield companies were profitable in the first half of the year. That's not surprising, because just like the publicly-traded companies, the pandemic affected them the same way. People weren't going to the doctor, so health insurers had fewer medical claims to pay. But digging a little deeper, you could see that the results of the companies were very mixed. Some made money, made more money year over year. Some made less in net income year over year. Over half of the Blue Cross Blue Shield companies actually made less in net income than they did during the same period in 2019. That was surprising to me, because I would expect them to profit, because of the trends we've already seen. People are going to the doctor less and health insurers have fewer medical claims to pay.
It's not a total apples to apples comparison, but it differs from the big for-profit insurers, all of which posted big gains in their bottom lines in the second quarter and the first half of this year. We were curious as to why that might be the case, that these companies, a lot of them, made less in profits. What I did was, I talked to a bunch of the Blues companies directly to find out what was going on and talked with a bunch of analysts that follow these companies. It turns out that there are a lot of things going on. A lot of it had to do with administrative costs. All of these companies, or the vast majority of them, posted very high administrative costs. It turns out that that's because of this Health Insurance Tax that came back for 2020. It's attacks on health insurers.
It's actually going to be repealed for 2021, but in statutory reports, plans have to record it, not as a tax, but as an administrative expense. They have to record it in the first quarter, instead of throughout the entire year, so it makes administrative expenses look extremely high in the first half of the year. But there are a few other things going on. The plans all said they had higher expenses because they were doing different things to help members get through the pandemic, as well as providers, they were propping a lot of them up. Some of them were probably also speeding up investments, things that they had been planning to do for a while, but now that they had extra cash because of COVID, they may have been speeding up the timeline on those investments and doing them now rather than waiting.
But a lot of details on specific investments weren't available in these quarterly reports. It may also just have to do with their business model. Blue Cross companies focus a lot on commercial insurance members, in small and medium-sized businesses. Those are the ones that, when the economy wasn't so hot, those were the ones that were hit. Employers would maybe not pay for health insurance. People would lose their health insurance. The Blues may have been more vulnerable to that than say, companies that have a lot of other business lines like Medicaid and Medicare Advantage, those national insurers.
Rachel Cohrs: It's really fascinating to hear how you looked at these numbers and then they prompted questions for you. I guess, big picture, I want to ask, it seems like there's a perception out there that insurers are, as a whole, are profiting off of the pandemic, with decreased utilization. I mean, some members of Congress have even launched an investigation into it. Does the data that you've looked at so far, across both the publicly-traded insurers and these Blues companies with somewhat different makeups, does that data bear out that assumption?
Shelby Livingston: I would say that the Blues in general, didn't have massive profit increases in the first half of the year. Some of them posted big profits for sure. Healthcare Service Corp, one of the largest Blues that operates in five states, it had a large increase in net income. But a lot of them, while they were profitable, they had lower net income year over year. It's also true that they've been doing various things to give some of that money back, like waiving copays and cost sharing, helping providers by liquidating some receivables or speeding up claims, offering premium holidays for their members or bigger wellness program awards, things like that. I think, it is true that it will take a while to know of health insurers are actually profiting from the pandemic.
It'll take a while to know how they're going to fare in the long-term. I think it's natural right now that they're making more money because they're paying fewer claims. Fewer people are going to the doctor. But it's unclear what's going to happen over the rest of the year. Already, people are starting to go back to the doctor. Hospital volumes are on the rebound, and it's possible that people will be sicker if they put off care and that leads to more expenses for the health insurer. But, it's also possible that a lot of the care that was forgone, will not come back and that's a benefit to health insurers. I think it'll take time to know if they're ultimately profiting from the pandemic.
Rachel Cohrs: If there are profits within this calendar year, we'll wait and see how that bears out. But, I know you've done a lot of work and reporting around the medical loss ratio or the MLR. Now, do you see consumers getting money back, if the trends continue the way that they have?
Shelby Livingston: Definitely. Rebates are based on three years of data. The ones for next year will be based on data for 2018, 2019 and 2020. So, 2018 and 2019 health insurers already had big profits. 2020, we know that it's likely they're going to be in a good position, due to the way the pandemic has affected them.
Rachel Cohrs: I'm wondering, it seems like this is a lot of work and you've found some really interesting information, but would you ever do an analysis like this again?
Shelby Livingston: The first one was a big learning process for us, but I think it's important to hold companies accountable, to scrutinize their financial results. If we do it for the publicly-traded companies, because that data is so readily available, we should make the effort to do it for companies that don't have to report. I mean, if we can get our hands on the data, there's no reason we shouldn't also monitor how they're performing financially. So, the answer is, yes. We'll definitely do this again.
Rachel Cohrs: Thanks so much for sharing this today, Shelby.
Shelby Livingston: Thank you.
Rachel Cohrs: If you'd like to subscribe and support our work, the detailed data analysis that goes into the kind of business reporting that Modern Healthcare does, there's a link in the show notes. You can subscribe to Beyond the Byline on Spotify, Google podcasts, Overcast, and other platforms, and you can stay connected with our work by following myself, Shelby and Modern Healthcare, on Twitter and LinkedIn. Thanks so much for listening.