Blue Cross of California - How much profit?
Knox-Keene Health Plan Expenditures Summary
FY 2001-02
Published by the California Medical Association
This is the tenth report published by the California Medical Association in regard to Knox-Keene Health Plan expenditures. The California Medical Association believes that the information provided in this report should be published annually by the Department of Managed Health Care, but, to date, they have chosen not to do so. Thus, we will continue to provide this information to the public.
This report is a compilation of expenditure data reported from managed care plans to the Department of Managed Health Care, and from reports provided by publicly traded plans to the U.S. Securities and Exchange Commission (10-K and Annual Reports).
Blue Cross of California:
% Revenue - Medical Care: 78.9%
% Revenue - Administration: 13.8%
% Revenue - Profit/Income: 7.3%
http://www.calphys.org/assets/applets/0102_knox_keene_report.pdf
Comment: Although this is a report of health plan performance in California, WellPoint, the parent company of Blue Cross of California, has been attempting to acquire significant market presence in other states. Also, the business success of Blue Cross of California has led other insurers to attempt to emulate its performance by adopting some of its innovative approaches to health care coverage. All of us should be concerned about the activities of Blue Cross/WellPoint.
Of the major insurers in California, Blue Cross has the lowest medical loss ratio. Since this means that they spent the least on patient care, it is very good news for Wall Street, but not so good for those paying the premiums and for those receiving health care services. Compared to participants in other plans, Blue Cross purchasers and beneficiaries are paying more and/or receiving fewer benefits.
The Blue Cross profit is listed as 7.3%, but does this really represent their true profit? A more accurate assessment of profit can be determined if we look at their actual business model. They administer the pooled funds designated for health care. These are not their funds, but they belong to the payers and beneficiaries. Since their business model is administration, their funds (revenues) are the administrative costs plus the profits that they assess for managing the risk pool.
The funding of Blue Cross' administration is quite high when compared to public programs. 13.8% of the risk pool is much more than Medicare's ~3%. But Blue Cross is a for-profit corporation, and, from a business perspective, they should be doing all they can to increase the size of their own entity. Growth is a fundamental goal in any business, and more growth in administration equates with the growth of Blue Cross' business model. As long as expanding their administrative business can increase profits, they should make every effort to do so.
The size of their business then equates with 13.8% of the risk pool. But the 7.3% profit is not the profit on the size of their business but it is a "profit" expressed as a percentage of the entire risk pool, 78.9% of which is not their funds. That 7.3% profit, when expressed as a percent of their administrative revenues (13.8% of the pool), is actually a return of 52.9% on their net administrative revenues (which is 34.4% of their gross revenues, administrative costs and profits combined). No wonder WellPoint is the darling of Wall Street.
The way we fund health care is irrational. We select an industry that concentrates on its own growth of administrative functions, and reaps a handsome profit in doing so. This diverts tremendous resources from the actual health care delivery system, which is particularly tragic considering that the unmet need is so great.
Should we blame the insurance industry for this waste? Of course not. They are doing precisely what any business should be doing - growing in size, maximizing revenues, and minimizing expenditures that do not increase their revenues, thereby creating maximal profit. For any business to do less would be irresponsible.
The blame lies with the policymakers. Why are they perpetuating policies that are designed to protect this industry that wastes so much in resources, when they should be developing policies that optimize the use of our resources for patient care? Not only does this industry waste resources, but it also failing in its primary responsibility to pool risk, as it shifts risk to others, thereby perpetuating the inequities in our system, leaving high-risk and low-income individuals without adequate protection. We are paying far, far too much for a very lousy job.
We need to communicate to our policymakers the fact that we need to dismiss this egregiously wasteful, private bureaucratic goliath and replace it with an equitable, affordable, publicly-administered system of comprehensive coverage for everyone. Should our policymakers remain unresponsive, then it would be our obligation to replace them with individuals that will act in the interests of patients. To do less would be to fail in our own responsibilities to make every effort to ensure the best health care for our families, friends, neighbors, and ourselves.