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Why Our 2014 Net Loss Wasn’t a Surprise

By Kyle Marshall | February 27, 2015 | Healthy Lifestyle, Industry Perspectives

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Our 2014 financial results, announced to news media today (Feb. 27) and filed with North Carolina insurance regulators, include something we haven’t seen since the late 1990s: A net loss. The $50.6 million net loss, while certainly a disappointment to the company, was not a surprise.

Gerald Petkau, BCBSNC’s senior vice president and chief financial officer, explained how four factors — all of which we monitored throughout the year — combined to negatively impact our results:

Government uncertainty relating to the Affordable Care Act. For example, the federal government changed the rules after the premiums for our ACA products were locked down by allowing transitional plans that let existing customers keep their policies. This had the effect of siphoning off business from the new ACA plans.

Higher medical costs for ACA plans. As a general rule, these new customers were older and less healthy, and drove medical costs higher than we anticipated — which we shared in October in announcing 2015 individual rates.

Poor performance in our Medicare Advantage business. Medical and pharmacy expenses trended higher for these products, and the federal government continued to reduce payments to insurers that offer Medicare Advantage plans.

And our continued investments in new technologies and infrastructure improvements. The money spent on these improvements will ultimately benefit customers and improve service, but it’s costly in the short run.

So what does this mean for our company and our customers? The main thing to remember is that we have sufficient reserves, Petkau told reporters. We finished the year at 3.6 months’ worth of claims and expenses in reserves, which was down from 2013, but still comfortably within the expected range of three to six months outlined in state insurance law.

Not only that, but our investment portfolio is diversified and has performed well. So the company’s financial position remains healthy, which means there’s no change in our ability to serve our customers.

We anticipated challenges during the first full year of the ACA but didn’t let that stop us from our commitment to serving all 100 North Carolina counties, he added.

Here are some additional highlights from our 2014 results:

  • Our membership hit an all-time high of 3.91 million, up from 3.84 million in 2013.
  • Increased membership brought both higher revenue and higher claims and medical expenses. Revenue increased to $8 billion, up from $6.4 billion the previous year. Claims and medical expenses totaled $6.4 billion in 2014, a gain from $5 billion in 2013.
  • Our medical care ratio — which is the percentage of revenue that’s incurred in paying customers’ claims — stood at 87.3 percent year-end. That’s up from 85.9 percent at the end of 2013.

Turning to our outlook for 2015, Petkau said that some challenges will remain. But BCBSNC is encouraged by the fact that we have a year’s experience with the ACA behind us, and that we’ve taken steps to improve our Medicare Advantage business. Also, our investment portfolio continues to do well. Our plan is to return to profitability in 2015 absent any unanticipated government actions related to the ACA exchanges.