Loss attributed to escalating hospital and drug costs, amplified by premium rate deficiencies
With the overall cost of healthcare services reaching $1.5 billion and hampered by insufficient premium rates, Blue Cross & Blue Shield of Rhode Island (BCBSRI) today reported a $100 million loss for the year that ended December 31, 2009. The local, nonprofit health insurer earned premium revenue of $1.7 billion against total expenses of $1.8 billion last year.
"Our current premium levels simply cannot keep pace with the increasingly high cost of healthcare," said James E. Purcell, BCBSRI president and CEO. "Although we have used our reserves to temporarily cover this gap, we cannot continue to sustain losses of this magnitude without putting our company—and our members—in financial jeopardy."
As a result of offsetting the current rate inadequacies, BCBSRI's reserves, which totaled $713 per member in 2008, fell to $558 in 2009, and are projected to decrease to only $479 per member by the end of this year. In the event of an unusually high number of claims, such as a bad flu season, BCBSRI would only be able to pay members' medical benefits and administrative costs for 63 days, 20 days fewer than recommended in a report commissioned several years ago by the Rhode Island Office of the Health Insurance Commissioner (OHIC).
According to Purcell, reimbursement increases to hospitals, which account for almost one-third of the member claims paid by the health insurer, pose an ongoing challenge in providing affordable healthcare. In 2009, for instance, Rhode Island's commercial hospitals demanded average increases that were triple the Consumer Price Index (CPI)  for the twelve months ending December 2009 before seasonal adjustment. With hospital costs projected to rise again in 2010, Purcell said that BCBSRI would strive to limit future hospital reimbursements to no more than CPI as part of the company's long-term efforts to make health insurance more affordable.
In addition to hospital price increases, BCBSRI saw a significant uptick in inpatient and outpatient utilization as more Rhode Islanders sought medical services, possibly driven by economic concerns and fears of job loss. Inpatient utilization increased from only .10 percent in 2008 to 1.27 percent in 2009. Similarly, outpatient utilization increased from 4.83 percent to 6.63 percent over the same period.
BCBSRI also reported significant annual increases in its prescription drug costs and utilization, which account for almost 20 percent of its member claims. Those costs increased by approximately 10 to 12 percent for both 2008 and 2009, and are projected to rise at that level again for 2010.
"Unfortunately, our members and customers are the ones who ultimately end up paying for higher prices on hospital care and medications in the form of increased premiums, copayments or out-of-pocket costs," said Purcell. "They just can't continue to afford these year-over-year increases. As a nation, and as a state, we need to better control the primary drivers of healthcare costs in order to improve affordability."
In addition to moderating the medical cost trend, Purcell also committed to reducing the company's operating expenses by more than $15 million over the next two years by fine-tuning business processes. Purcell explained that member claims comprise the vast majority of BCBSRI's overall annual spending, or 86.2 percent of total premium revenue for 2009, while the company's administrative costs made up the other 13.8 percent.
"There is no question that our current healthcare system needs change," said Purcell. "That's why BCBSRI is aggressively undergoing a business transformation designed to improve the health of Rhode Islanders and moderate long-term healthcare costs by improving the local healthcare delivery system.
Purcell concluded that these changes will help to moderate premium increases – but, it will take time. For the immediate future, he said, premium rates need to better reflect the actual cost of healthcare.
Blue Cross & Blue Shield of Rhode Island is the state's leading health insurer and covers more than 600,000 members. Blue Cross & Blue Shield of Rhode Island is an independent licensee of the Blue Cross and Blue Shield Association.
Bureau of Labor Statistics, December 2008