Strong Investment Returns Support Blue Cross Blue Shield of Michigan as the Company Achieves a Modest Operating Margin and Devotes $1.3 Billion to Help Members and Customers During COVID-19 Pandemic
by Brianna Neace
| 6 min read
DETROIT, March 1, 2021 — Strong gains from Blue Cross Blue Shield of Michigan’s investment portfolio made the difference in helping the company maintain financial stability during a year dominated by the COVID-19 pandemic, as BCBSM achieved a small operating margin in 2020 of $120 million, less than one percent of the company’s $30.1 billion in total revenue, based on Generally Accepted Accounting Principles. During 2020, Michigan’s largest health insurer devoted $1.3 billion to customers and providers in the form of paying for COVID testing and treatment, providing direct premium refunds and rebates, waiving member cost-sharing for COVID-19 testing, treatment and telemedicine services, and advancing payments to health care providers. “Since the beginning of the COVID-19 pandemic, Blue Cross and Blue Care Network have put the health of our members and customers at the forefront — ensuring no-cost services for COVID testing and treatment, providing free telemedicine services for months, and delivering premium refunds,” said BCBSM President and CEO Daniel J. Loepp. Because of its positive financial performance, BCBSM will pay another $85 million to the Michigan Health Endowment Fund in April – bringing the total contribution to $610 million to enable the independent Health Endowment Fund to invest in programs protecting Michigan’s most vulnerable residents. The BCBSM enterprise also paid $388 million in taxes to federal, state, and local governments in 2020. Contributing to the positive margin was the company’s conservatively invested portfolio of stocks and bonds, which generated a positive return of $724 million. The operating margin equates to less than one-half of one percent of total revenue. Over the past 10 years, BCBSM’s average annual operating margin is less than 1 percent. The complete and audited 2020 GAAP financial statement will be released in the company’s annual report in May. Early in the pandemic, BCBSM advanced payments to health systems totaling more than $680 million – keeping revenue flowing as providers closed elective services to focus resources on the front lines. As part of this effort, BCBSM advanced $5 million to physician practices, allowing independent physicians to invest in telehealth technology resulting in more than five million telemedicine visits by BCBSM and BCN members during the pandemic. “Blue Cross pays an average of $71 million per day into our health care economy,” Loepp said. “We take our role seriously, given how badly needed this revenue is to keep access to care open not just for our members, but for all the people of Michigan. We applaud the effort and sacrifice of our provider partners in 2020. They saved lives. Blue Cross was pleased to play a significant, but behind-the-scenes role, in their heroic response to COVID-19.” BCBSM gave back a total of $35 million to members in 2020 in the form of cost-share waivers for COVID treatment. Members of commercial PPO and HMO plans through Blue Cross and Blue Care Network, as well as individual Medicare plan members, did not pay cost sharing for COVID-19 treatment in the form of copays, deductibles and coinsurance. Blue Cross also paid for a total of 1.6 million FDA-approved, physician-authorized tests for COVID-19 in 2020. “We didn’t want copays to stand in the way of our members’ peace of mind if they were battling COVID-19,” Loepp said. “Cost-share waivers were a significant investment in our members’ health and wellbeing and a key response to the public health emergency created by the pandemic.” In total, Blue Cross put nearly $1.3 billion behind its response to COVID-19 during 2020, including the following give-backs:
- Returning more than $115 million to members for medical, dental and vision plan premiums
- Waiving $65 million in telemedicine copays for members during the initial wave of pandemic shutdowns and expanded telehealth services
- Waiving $39 million in member copays, deductibles and coinsurance for COVID-19 testing and waiving $35 million in member cost-sharing for COVID-19 treatment
Investment returns were the single largest driver of 2020 positive results, generating $724 million on a GAAP basis within the conservatively invested portfolio. Positive investment performance lessens pressure on BCBSM’s health insurance lines of business to provide financial margins to improve the company’s capital position. Blue Cross and its subsidiaries offer a diverse portfolio of products aimed to provide health care access and security. The portfolio includes commercial health insurance, workers’ compensation, dental, vision, Medicaid and Medicare Advantage, as well as health care technology and business process services to health care industry clients. Highlights of BCBSM’s 2020 performance include:
- Health Insurance Membership – Total membership for BCBSM, Blue Care Network and Blue Cross Complete in Michigan and other states totaled 5,343,018 members at year-end 2020, a slight decline of 41,430 members. This was primarily due to losses experienced related to COVID-19’s impact on the economy.
- Medicare Advantage Membership and Rates – Medicare Advantage membership grew again in 2020 by 65,060 for a total of 591,349 Medicare Advantage members.
- Medicaid Membership – Blue Cross Complete gained by nearly 80,000 members in 2020, becoming the third-largest Michigan Medicaid plan with more than 289,000 members.
- ACA Individual Market Membership and Rates – BCBSM’s membership in individual plans decreased by about 15,000, to a total of 170,200 members in January 2021 following the annual open enrollment period. Rates held relatively steady, with only slight increases in average rates of 1.7% for Marketplace PPO plans and 2.5% for Marketplace HMO plans.
- Small Group Membership – As anticipated Blue Cross experienced some membership losses in this market that was heavily impacted by COVID-19 shutdowns. Due to efforts such as premium holidays, premium payment plans and similar programs, decreases in membership were minimized. The small group year-end membership was at 294,800. Rates have remained stable into 2021.
- Stable Credit Rating – Ratings agency AM Best maintained an “A Stable” rating for BCBSM in 2020. Under Statutory Accounting rules, BCBSM’s Risk Based Capital improved from 712 percent in 2019 to 742 percent in 2020.
- Giving Back to Michigan – Because of the company’s strong financial performance, BCBSM is scheduled to make a payment of $85 million to the Michigan Health Endowment Fund in March 2020. A nonprofit governed by an independent board, the Health Endowment Fund supports 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 $610 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 is parent only and does not include subsidiaries 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, BCBSM posted $88 million in underwriting gains on SAP revenue of $9.34 billion in 2020. Blue Cross Blue Shield of Michigan, a nonprofit mutual insurance company, is an independent licensee of the Blue Cross and Blue Shield Association. For more company information, visit bcbsm.com and MiBluesPerspectives.com.