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July 15--DURHAM -- Blue Cross Blue Shield of North Carolina is planning to cut administrative costs by 20 percent by 2014 in part to prepare for health care reforms. The move is expected to affect the insurer's operations in the Triangle.
Spokesman Lew Borman said Wednesday the company already has begun to streamline its business by eliminating open positions and looking at real estate costs. The insurer might look more at reducing its work force down the line. Blue Cross also wants to begin talks with other stakeholders in the health care industry to cut costs.
"A lot of it is motivated by health reform," Borman said.
"We're going public because we want people to understand that we are making changes," he said. "And we certainly think some of those changes will be to our customers' benefit."
Blue Cross, headquartered in Chapel Hill, has 3.7 million members and is the largest health insurer in the state. The company employs about 4,600 workers and has properties in Durham and Chapel Hill, as well as offices in Greensboro, Wilmington and Charlotte.
In 2009, the company reported $5.2 billion in revenues and $107.3 million in net income, a 2.1 percent profit. The company's profits have fallen dramatically from 2007, when it reported $209.1 million in net income, and from 2008, with $186.3 million.
For first quarter 2010, the company had a net income of $77.1 million, according to the N.C. Department of Insurance.
"The only way we could take action was reduce our own administrative costs, work to slow the cost of health care and diversify," Borman said.
Health care reform passed this year is expected to take three to four years to ramp up. Although as many as 600,000 more consumers could be added to Blue Cross as a result, according to Adam Searing, director of the N.C. Health Access Coalition, uncertainties surrounding reform could be making the insurer nervous.
According to Searing, most of the premiums must be spent on medical care, not administrative costs under the rules set forth in health care reform.
"What they're nervous about is what could be defined as medical care and what could be defined as administrative costs," he said.
Blue Cross listed $84.5 million in general administrative expenses for first quarter 2010.
Searing said the move to cut costs is largely a positive for Blue Cross and its customers.
"It's good they're trying to cut costs. It's overdue," he said. "We're all going to have to work together to reduce health care costs overall."
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