Blue Cross Blue Shield of Michigan Reports Strong Performance in 2017 Across Membership, Investment Earnings, Operating Margin and Capital Position
DETROIT, March 1, 2018 — Across its primary measures of business performance, Blue Cross Blue Shield of Michigan reported very successful year-end results for 2017 – increasing health membership for the seventh consecutive year, achieving a record high number of family contracts, and posting positive health insurance underwriting results after two years of negative margins.
“Across the board, 2017 was a very strong year for our business,” said Daniel J. Loepp, BCBSM president and CEO. “Achieving membership gains speaks to the efforts we’ve made as a company to improve our customers’ experience and provide health insurance products that improve our members’ lives.
“We ended 2017 in a strong position to continue to serve our membership,” Loepp said. “We are keeping margins on health insurance low, but profitable. We saw a significant increase in small employer membership in 2017, resulting from our efforts to moderate prices for small businesses. And we are diversifying our revenue streams, growing business outside of health insurance and maximizing returns from investments, to keep health coverage affordable.”
- Health Insurance Membership – BCBSM added 54,862 new members in 2017 – its seventh-straight year of membership gain. Membership includes all people covered by BCBSM, Blue Care Network of Michigan and Blue Cross Complete of Michigan. Membership totaled 5.4 million people nationally – including 4.62 million people in Michigan. The company achieved a record high number of family contracts in BCBSM’s nearly 80-year history. Small employer-based membership grew by 20,530 members in 2017.
- Operating Results and Subsidiary Performance – BCBSM reported positive health insurance performance for the first time in three years – a positive operating margin of 1.4 percent. The gain of $385 million on a GAAP basis was driven in large measure by improvements in the company’s Medicare Supplement (Legacy Medigap) business. In January 2017 BCBSM put into effect, for the first time in five years, modernized pricing authorized by Michigan regulators for Legacy Medigap plans, bringing prices closer to the rates charged by other companies. BCBSM still loses money on Legacy Medigap overall, but has effectively eliminated average annual losses incurred since 2006 of more than $200 million a year. Another key factor in operating results was strong profitability from subsidiary companies within BCBSM’s Emerging Markets division – which includes Lansing-based AF Group.
- Consolidated Investment Performance – As a nonprofit mutual, one of the critical areas of annual financial performance for BCBSM is within its investment portfolio. Strong performance there lessens pressure on BCBSM’s health insurance lines of business to drive overall profitability. In 2017 BCBSM’s conservatively invested stock and bond portfolio generated a 6 percent return. BCBSM generated a positive margin of $366 million on a consolidated GAAP basis within its investment portfolio during 2017.
- Capital Position – Ranking within the lower-quarter of all Blue Plans nationally, BCBSM’s Risk Based Capital position had become a topic of concern among some national credit agencies, resulting in an A- rating with a negative outlook for the company in 2016. But as that position improved substantially, A.M. Best issued a revised credit rating that removed the negative outlook during 2017. The company’s capital position also improved at the end of 2017 due to changes in federal tax law. Accounting for the impacts of tax reform requires BCBSM under GAAP accounting to record in 2017 the entire future value of tax credits the company will receive in future years. The value of those future tax credits – $533 million – is reported as income for 2017, but will be realized over a four-year period starting in 2020. Under Statutory Accounting rules, the impacts of federal tax reform had the effect of improving BCBSM’s Risk Based Capital by 121 points – to a year-end RBC of 668 percent.
- Giving Back to Michigan – Because of the company’s strong financial position, BCBSM is scheduled to make a payment of $85 million to the Michigan Health Endowment Fund in April 2018. A nonprofit governed by an independent board, the Endowment Fund provides money to support efforts around Michigan to invest in health, protect the vulnerable, and subsidize supplemental coverage for low-income Medicare beneficiaries. The upcoming payment will bring BCBSM’s total payments to $355 million.
Statutory Financial Reporting Information
BCBSM also will file a financial statement with the State of Michigan that is based on a different accounting standard – Statutory Accounting Principles (SAP). This accounting method does not include subsidiaries and some investments, the income statement value of certain federal tax credits, and has other differences from GAAP accounting. It is required by state regulators, but does not represent a comprehensive consolidated view of BCBSM’s enterprise financial performance as a nonprofit mutual. Under SAP accounting, the company posted a statutory net gain of $295 million on revenue of $8.1 billion in 2017, after a net income loss of $570 million over the previous two years.
Blue Cross Blue Shield of Michigan, a nonprofit mutual insurance company, is an independent licensee of the Blue Cross and Blue Shield Association. BCBSM provides and administers health care benefits to 4.6 million members residing in Michigan in addition to employees of Michigan headquartered groups who reside outside the state. The company is committed to delivering affordable health care products tailored to lifestyles and specific health goals through a broad variety of plans for businesses, individuals, and seniors. Beyond health care coverage, the company provides impactful community initiatives and leadership in improving health care. It has fulfilled its unique nonprofit mission for more than 75 years. We are a Michigan employer with nearly 9,000 employees at BCBSM and its subsidiaries, including 7,600 employees in our health plan business. For more company information, visit bcbsm.com and MiBluesPerspectives.com.