888-765-5400BCBSNC Questions & Answers Part I
Why are medical costs up?
BCBSNC is seeing recent increases in medical costs for several reasons. We waived copays on generic drugs from January through June 2009 in an effort to encourage our customers to use generics where appropriate to reduce medical costs. Other factors include: H1N1 and the seasonal flu, as well as impacts from COBRA and the aging of groups (where layoffs are newer employees.) (Note: This finding is similar to recent announcements by our competitors.) The use of generic prescriptions went up nearly 2 percentage points from December 2008 to December 2009 to 68 percent.
We believe the copay waiver is an investment in improving health by making it possible for people to keep taking their medicine even in a down economy if costs are lower. The 2009 generic copay waiver program applied to nearly 1 million BCBSNC customers and eliminated customer copays for covered generic drugs.
Why did your profits decline? Year-to-date profits dropped because they continue to experience higher medical costs. We have also experienced losses in insured membership, resulting largely from the economy. You indicate 87 cents of the premium dollar goes to medical costs. What do you include in that calculation? The medical costs include payments to doctors, hospitals, pharmacies and other providers of medical care, prescription drugs and medical devices. It also includes projections by our actuaries of dollars we need to have on hand for bills not yet received for services provided (contract and claims reserves) “Medical costs” does not include administrative costs.
Why are operating expenses up?
Like many other companies, we’ve seen increases in pension expense (primarily due to the impact of the decline in the financial markets in 2008 on our pension plan assets). Our operating expense ratio increased from 18.8% in 2008 to 19.6% in 2009. However, this calculation does not take into account the administrative fees and claims paid on behalf of our self-funded groups (i.e., premium equivalents). With these included, our operating expense ratio remained flat at 8% from 2008 to 2009. (This number is different in our statutory filing.) Why do you need more than $1.4 billion in reserves? To keep our reserves in perspective, they represent just 3.6 months of claims and administrative expenses. That’s below our 25 year average of 4.0 months and complies with state law, which calls for reserve levels of three to six months. Our level of reserves is prudent and fiscally responsible, particularly when you consider the value of claims we handle each year exceeds $11.3 billion (for both insured and self-funded claims.) In a time of economic uncertainty, our financial stability protects customers.
Why do you pay your top executives so much?
• Less than a third of a cent of every premium dollar goes to executive
compensation, which means that executive pay has a nominal impact on premiums.
Nearly 87 cents of every premium dollar covers the health care costs of our customers.
Much of the rest goes to customer service and technology. (However, this calculation
does not take into account the administrative fees and claims paid on behalf of our selffunded groups (i.e., premium equivalents). With these included, just over a tenth of a
cent of every premium dollar goes to executive compensation.)
• It takes a seasoned, successful team to lead a company that processes nearly 47.2 million claims per year. The company’s leadership team has kept this business in a solid position during these difficult economic times. This is the leadership team that has kept its commitment to our customers.
The above information information is from the March 1st, 2010 News Release from Blue Cross Blue Shield.
For more information on health insurance coverage in North Carolina, please visit our website at www.nchealthplans.com or call our toll free number 888-765-5400 and speak with one of our qualified agents. Our agency provides coverage for health insurance in North Carolina through Blue Cross Blue Shield of North Carolina (BCBSNC). You may qualify for a 15% healthy lifestyle discount if you are in excellent health. Call us for details.