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Taking a Peek Inside The Profit Margins and Administrative Expenses in BCBS World

By Clive Riddle, February 1, 2019

Mark Farrah Associates has released analysis of major Blue Cross Blue Shield plan profitability performance, comparing year-over-year results as of September 30, 2018. They note that “BCBS plans with over $10 million in revenue at third quarter 2018 include Anthem, Health Care Service Corp. (HCSC), Blue Shield of CA, BCBS of Michigan Group, Guidewell Mutual Holding Group, Independence Blue Cross (IBX), and Highmark.  These industry leaders reported positive, and in most cases, improved profitability between 3Q17 and 3Q18.”

Their findings include:

  • BCBS of Michigan’s “profit margin increased nearly 3% from 5.43% in 3Q17 to 8.31% in 3Q18 due to premium growth that outpaced the increase in medical expenses and an income tax credit taken in 2018.” 
  • Guidewell’s “profit margin grew to 5.33% from 4.71% in September of 2017, primarily due to increased premium revenue, which outpaced the growth of expenses.”
  • Independence Blue Cross (IBX) “reported the largest improvement with a profit margin of 2.29% as of September 30, 2018, up from 0.30% in September of 2017 due in part to increased premium revenue and reduced medical costs per member.”
  • Blue Shield of CA “increased its profit margin to 3.36% from 2.81% due in part to lower medical costs per member.”
  • Health Care Service Corp (HCSC) “reported the largest profit margin of 14.21% for 3Q18, up from 6.10% in 3Q17 due to an increase in premium revenue and a large income tax credit.”
  • Highmark’s “profit margin of 6.62% in 3Q18 fell slightly from 7.11% in 3Q17 due in part to increased administrative spending.” 
  • Anthem’s “3Q18 profit margin of 5.66% improved from 4.52% a year ago due in part to a combination of slightly lower medical expenses and higher premium revenue per member.”

Being administrative expenses are such an important factor in plan profitability, it’s worthwhile to examine BCBS performance in this arena. Sherlock Company annually examines BCBS plans with respect to their administrative expenses, with their most recent report published in summer 2018

Results aren’t published by plan, but rather are aggregated for the BCBS sector. Overall, administrative costs increased 5.9% for 2017. Their 2017 median benchmark findings include: 

  • Sales and Marketing: $8.79 pmpm; 2.0% of premium
  • Medical and Provider Management: $4.44 pmpm; 1.3% of premium
  • Account and membership Administration: $14.66 pmpm; 4.0% of premium
  • Corporate Services: $6.27 pmpm; 1.6% of premium
  • Total administration: $34.99 pmpm; 8.9% of premium
  • Total administration pmpm by product line:  Commercial HMO $48.87; Commercial PPO $43,85; Commercial ASO $27.13; Medicare Advantage $97.63; Medicaid $43.22
  • Total administration % of premium by product line:  Commercial HMO 8.6%; Commercial PPO 10.1%; Commercial ASO 7.7%; Medicare Advantage11.3%; Medicaid 9.3%



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