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Key Takeaways

• We paid $659 million in taxes that support programs and services benefitting Tennesseans, and we earned $569 million in after-tax net income (profit).
• Our five-year average for net income is 2.1%.
• Because we’re focused on serving members, not maximizing profits, we are planning to earn less in net income for 2019 than we did in 2018.

As a mission-driven, not-for-profit company, our first priority is to improve the health of our 3.5 million members and the communities we serve. That starts with providing affordable access to quality health care, and ensuring we pay our share of your health care costs quickly.

We did that in 2018, paying out $15.2 billion to meet the health care needs of our members.

But we also helped to ensure our members got the right care at the right time. Those efforts included data-driven outreach — like mailing personalized scorecards to promote preventive and maintenance care — and personal support from our hundreds of care managers.

Being mission-driven also means we have a responsibility to be open about how we use your money. Here’s how our business performed in 2018 and what it means to you.

We used 85 cents from every premium dollar to pay for our members’ medical needs.

What did we pay out for different kinds of care?

• 26 cents: physician services
• 24 cents: inpatient facility care
• 21 cents: outpatient facility care
• 9 cents: prescription drugs
• 5 cents: other medical services

We took an active role in improving our members’ health and wellness. We used data-driven insights to promote preventive care, closing nearly 600,000 gaps-in-care through our member scorecard efforts. And our 900 nurses assisted members transitioning home from hospital care and helped members manage chronic health conditions.

And we worked hard to manage operating costs effectively to keep costs down for our customers.

After paying for our members’ care, we:

• paid out 4 cents in local, state and federal taxes
• used 7 cents to run our business operations
• and had 4 cents left as net income, or profit

Just like in previous years, we paid more in taxes than we retained in net income. (In the previous decade, we paid $3.8 billion in taxes.) And having our operations based here in Tennessee means we’re supporting our state’s economic health.

We paid $659 million in taxes that support programs and services benefitting Tennesseans, and we earned $569 million in after-tax net income.

Our 2018 net income represents 3.9% of gross revenues. And over the past five years, our average net income is 2.1%.

We earned more than expected on our Individual/Marketplace line of business, in part because some of the risks we had to price in didn’t play out as they could have.

2018 was only the second year we earned a positive margin on these plans. After five years, our after-tax margin on Individual/Marketplace plans is 4.2% overall.

Last summer, we saw that our margin would be higher than expected, so we lowered Individual/Marketplace rates for 2019 by an average of 14.8%.

Even though we lowered these rates for 2019, we felt it was necessary and responsible to price for numerous risks, even if it meant we might earn larger profits if those changes didn’t have the impact we planned for. One example is regulatory changes, like the delayed implementation of the individual mandate, which led to nearly $100 million in unexpected net income.

The Medical Loss Ratio (MLR) provision of the Affordable Care Act requires excess margins (averaged over a three-year period) be returned to customers. We expect to pay between $15-20 million in rebates this summer based on our cumulative margins from 2016-2018.

We are a taxpaying not-for-profit, which allows us to earn lower margins but also brings a responsibility to maintain strong reserves.

Any net income we earn goes into our reserves or gets invested to enhance our member service capabilities. So our 2018 financial performance allows us to stay strong for our customers, as demonstrated by our A+ Stable rating from Standard and Poors.

We have $267 per member in total reserves, which would cover our members’ claims for 88 days. Our required reserves would only cover claims for 60 days.

Our reserves – built over nearly 75 years – now total $3 billion, but $2 billion of those are required by law based on how many members we have and how much we have to charge in premiums. The amount of reserves we are required to hold rises each year to reflect the cost of medical care and services today.

It’s important to hold these additional reserves — as illustrated by our experience on the Marketplace. Our reserves did their job to protect our health plan’s stability as we incurred operating losses by entering a volatile new market. These additional reserves also allow us to invest in future member service capabilities.

Because we’re focused on serving members, not on maximizing profits, we are planning to earn less in net income for 2019 than we did in 2018.

We have a responsibility to maintain financial strength so we can continue serving our customers, which means we have to price to earn a margin each year. But our customers pay less because we keep operating costs low and aim for low margins.

Ultimately, the biggest factor in our rates is what health care providers and drug makers charge for the treatments our members need. And we will keep working to advocate for lower costs on behalf of our neighbors in Tennessee.