Blue Cross Blue Shield of North Dakota reports $72.9 million loss

FARGO – Blue Cross Blue Shield of North Dakota recently completed a bruising year that saw its financial bottom line drop by $72.9 million from a loss on a troubled subsidiary and higher-than-expected medical claims.

The year-end figures for 2013 were disclosed Thursday in a financial report filed with the North Dakota Insurance Department.

“We clearly had a bad year, no question about it,” said Paul von Ebers, the North Dakota Blues’ president and chief executive officer.

Blue Cross Blue Shield’s capital and surplus as of the end of 2013 was $199 million, down from $271.9 million the year before.

“That is a meaningful drop, but it is still a safe financial reserve level,” he said. “It is still significantly above regulatory requirements and it is a stable, safe level of reserve for a health insurance company.”

The biggest share of the North Dakota Blues red ink was a $51 million loss associated with Noridian Healthcare Solutions, which sustained heavy losses from a contract to build the Maryland health care exchange.

Customers’ health insurance premiums will not go up as a result, however, because insurance regulators only approve rate increases based on past and predicted medical claims, as well as administrative costs, which are 7.7 percent of premiums, von Ebers said.

“We are doubling down our efforts to cut administrative costs,” he said. “We’re trying to be as conservative as we can be.”

For years Blue Cross Blue Shield premium payers have benefited from cost savings enabled by shared computer systems and other resources, von Ebers said. He estimated insurance administrative costs would be 15 percent higher without the shared savings.

For 2013, Blue Cross Blue Shield had a $25.2 million loss from its health insurance operations, the first such loss since 2008.

One reason for the loss from underwriting insurance was that medical claims exceeded expectations. Projections used to set premiums for 2013 were hampered by new electronic medical record systems and financial systems adopted the previous year by several large providers, which delayed the posting of claims, and therefore understated the claims’ total, von Ebers said.

So far this year, premiums appear adequate and the Blues finished the first quarter below budget, with a positive margin, von Ebers said.

“So 2014 appears to be on track,” he said.

The loss for 2013 was softened by almost $12.4 million in gains from Blue Cross Blue Shield’s investment portfolio, von Ebers said. The portfolio has shifted to more conservative investments, which should result in a lower but more stable return, von Ebers said.

Blue Cross Blue Shield will be able to recover from the 2013 loss by marginal gains over several years, he added.

The $51 million loss by its subsidiary Noridian Healthcare Solutions is more than the actual loss from the Maryland exchange, von Ebers said.

For accounting reasons, Blue Cross Blue Shield was required to record Noridian Healthcare Solutions’ value on the parent company’s books as zero – although von Ebers said the company actually has significant value.

“We feel strongly it does have value,” he said.

Noridian is a major processor of Medicare claims, a business von Ebers said is “growing and profitable.”

In its report for the quarter that ended Sept. 30, Blue Cross Blue Shield estimated its Noridian loss at $17.8 million. The current estimate reflects all costs for 2013.

“NHS does believe that it still has claims with the state of Maryland, so that $51 million may not be the end of the story,” von Ebers said, referring to Noridian Healthcare Solutions.

In late February, Maryland terminated its contract with Noridian because of significant problems with the online health insurance marketplace.

The Maryland Health Benefit Exchange severed its ties to Noridian as of March 31, a date that coincided with an enrollment deadline for signing up for health insurance through exchanges under the Affordable Care Act.

Before ousting Noridian, the Maryland exchange had paid Noridian $65 million for work on the exchange, and Noridian had billed the state $78 million, according to news reports.

In announcing it was terminating its contract, the head of the Maryland exchange said the state was “preserving all rights to seek damages against Noridian and its subcontractors” for problems from the exchange.

Adam Hamm, the North Dakota insurance commissioner, said through a spokeswoman that he would not comment on the Blues’ newly reported financial figures until he is able to study the document.