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If you’re a BlueCross member, you count on us to provide access to affordable, quality health care. But you may not necessarily understand why medical care itself or the coverage we provide costs what it does. As a mission-driven company, we feel it’s our responsibility to help by being open about our financial stewardship. 

In this article, I’ll explain how we used the premium dollars we collected in 2017 from Tennessee-based businesses and members like you.

We paid $14 billion in medical costs

In 2017, we made $14 billion in payments to doctors, hospitals and drug companies to cover the medical treatments required to care for the members we serve.

To look at it another way, for every dollar we received in premiums and fees, we paid out 86 cents for medical care.

And here’s how that breaks down:

• 26 cents covered physician services
• 25 cents covered inpatient facility care
• 21 cents covered outpatient facility care
• 10 cents covered prescription drugs
• 4 cents covered other medical services

We managed administrative costs effectively

If we paid out 86 cents from each premium dollar to cover our members’ care needs, where did the remaining 14 cents go?

First, 3 cents went to pay our local, state and federal taxes – which added up to $498 million. (If you didn’t realize we pay taxes, here’s an explanation of our not-for-profit company status.)

Next, 8 cents from each premium dollar went to cover the costs of doing business.

What do those include? There’s the obvious: processing and paying claims, and assisting customers who call in with questions. But we do so much more that many members aren’t aware of.

People I talk to are often surprised to learn that we have more than 850 nurses working at BlueCross. Many of them work directly with our members to help coordinate care for chronic health conditions or after an inpatient hospital stay. Their work complements that of our provider partners to help ensure members get the right care at the right time.

We also have a large, specialized staff working with the technology required to support our members and partners – managing physical hardware like servers, creating digital tools on our website and performing sophisticated data analysis that help providers close gaps-in-care.

And of course, we have all the usual business functions like accounting, legal and marketing.

In all those areas, we understand the costs are ultimately borne by our members, so we work hard to manage expenses as efficiently as possible while balancing the ability to hire and retain talented workers.

We hit our operational goals and improved our financial strength

After medical costs, taxes and operating expenses, we retained the last 3 cents of each premium dollar as net income, or profit. Our 2017 net income totaled $427 million, or 3.3% of our total revenues.

As a taxpaying not-for-profit company, our goal isn’t to maximize those numbers – but some margin is necessary, as we explain here. And our 2017 net income was within our historical target range of 3-5% margin. Here are some additional facts for context:

• 22% of our 2017 net income came from investments.
• Our five-year average margin is just 1.7%, which is lower than other sectors in the health care industry.
• We paid more in combined local, state and federal taxes than we retained in net income.

Our 2017 financial results were driven by strong operational performance, including 4-star clinical quality ratings and national recognition for our member service and diversity efforts.

It’s also worth noting that we earned a margin on the Individual/Marketplace line of business for the first time in four years. We earned $113 million on those plans in 2017, a welcome development after losing more than $400 million over the first three years.

Our diversified business model helps us weather challenges like our early losses on the Marketplace, but long-term, each line of business needs to be self-sustaining.

Our strong performance protects your future

As a not-for-profit company, we don’t have shareholders or private owners who benefit from our business operations. So the net income we retain in any given year goes into our reserve fund.

In fact, we’re required by the State of Tennessee to maintain a certain level of reserves based on how many members we have and how much we have to charge in premiums. That requirement provides a safety net for consumers by ensuring we can pay all our members’ claims and sustain operations in case of an epidemic, disaster or market downturn.

Our reserves as of Dec. 31, 2017 included $1.9 billion required by the state and an additional $412 million, for a total of $2.3 billion.

If we held just the minimum, it would cover 63 days of claims for our members. Our remaining, unassigned reserves represent $122 per member, which would cover an additional 13 days of claims. These funds could also be used to cover investments in our technology and health management capabilities.

After three consecutive years of losses on Individual/Marketplace plans our unassigned reserves dropped by roughly 54 percent, from $472 million in 2013 to $216 million in 2016. Our goal is to have 5-10% of net revenues in unassigned reserves, and our 2017 performance allows us to work toward that goal.

Looking ahead to 2019

We continue to face uncertainties on the ACA Marketplace, but we have a better grasp on the medical needs of those members and hope to see rates stabilize moving into 2019.

We have also elected to use our federal tax savings to benefit our customers. We’ll use:

• 75% of tax savings to help offset increases in premiums and service fees for our customers
• 25% of tax savings to help provide enhanced health management capabilities

All our efforts on the cost and quality side of the health care equation are driven by our mission of peace of mind through better health. Based on last year’s results, we have a good roadmap in place to drive positive outcomes for both BlueCross and our members this year and beyond.