Blue Cross parent reports weaker second-quarter results

Crains reports:

“Bottom-line income for the parent of Blue Cross & Blue Shield of Illinois fell sharply during the second quarter as demand for medical care surged, a sign that the economy is strengthening.

Health Care Service Corp.’s net income fell 28 percent, to $194.3 million, during the second quarter, down from $269.4 million in 2011, when the Chicago-based firm blew past the $1 billion net income mark for the second straight year.

A mutual company owned by policyholders, Health Care Service is the largest health insurer in Illinois, whose financial performance is closely watched by employers.

The company’s total revenue, the bulk of which is net premium income, was up 3 percent, to $5.08 billion, during the quarter, compared with the second quarter of 2011, according to a recent financial statement.

But those gains were outstripped by higher expenses, including hospital and medical benefits paid out, which increased 8 percent to $3.7 billion, according to a second-quarter financial statement. Prescription drug benefits rose 6 percent, to $630 million.

Health Care Service’s increased spending may reflect a shift in the broader economy. During the recession and feeble recovery, even budget-minded consumers with insurance delayed seeking medical treatment, looking to save on out-of-pocket expenses, experts say.

Now, many other insurance companies nationwide have reported growing demand for health care, called utilization, which in turn results in increased payouts by insurers.

“People had been putting off medical treatment in the past and are going to the doctor now when they didn’t before,” said Joel Peyton, a Nashville-based analyst at HealthLeaders-InterStudy who covers the Illinois insurance market. “Major insurers are seeing more utilization than expected and that’s hurting their numbers.”

A Health Care Service spokesman said in a statement: “We view the increase in utilization as more of a return to normalcy compared to the lower than anticipated utilization we were seeing in 2011 and the early part of 2012.The increase in utilization appears to have started in mid-first quarter and continued through the second quarter.”

The company’s performance was also crimped by rising general administrative expenses, which were up a third, to $368 million, over 2011’s second quarter.

The second-quarter results followed a moderate decline in the first quarter, which the company attributed to higher membership and increased utilization.

Health Care Service is the state’s largest health insurer by revenue, with about 48 percent of the $21.1 billion total health and accident insurance market here, according to data compiled by the National Association of Insurance Commissioners. United Healthcare of Illinois, a subsidiary of Minnetonka, Minn.-based UnitedHealth Group, is a distant second with about 10 percent.

Health Care Service also operates Blue Cross plans in Texas, Oklahoma and New Mexico.

The company’s financial filings with the association include only its business with its insurance operation, but not its low-margin business with processing claims for self-insured health plans, such as those of big employers.