Blue Cross, Allegiance post insurance losses [Billings Gazette, Mont.]

Mar. 4--HELENA -- Blue Cross/Blue Shield of Montana, the state's dominant health insurer, lost more than $17 million on its insurance business last year -- despite premium increases that ranged from 9 percent to 19 percent for most of its 200,000-plus customers.

Meanwhile, the state's second-largest health insurer, New West Health Services, posted a small gain on its 2009 business and reported an average premium increase of 5.2 percent.

The only other Montana-based health insurer, Allegiance Life and Health Insurance Co. of Missoula, nearly doubled its revenue from premiums in 2009 but lost money for the year, finishing nearly $6 million in the red on its relatively small book of business.

David Kibbe, chief executive officer of New West, said Wednesday that the economic recession has created a tough market for health insurers, driving up health care usage while also making it harder for people to afford health coverage.

"It's not an expanding market; it's a shrinking market," he said. "The number of employers who are offering health insurance is declining daily.

"(And) there is an underlying unease. People use their coverage more. People are saying, 'I need to get this problem taken care of, while I still have the coverage.'" All three firms filed their annual financial reports this week with the state auditor's office, which regulates insurance in Montana.

Here's a look at highlights of each company's report:

-- Blue Cross/Blue Shield: The Helena-based nonprofit company saw its net premium income drop about 2.5 percent in 2009 to $505 million, as its number of insured customers dropped from about 225,000 down to 210,000. At the same time, the cost of medical claims by customers increased by about $4 million, or 1 percent.

After administrative costs, investment income and taxes are figured in, Blue Cross lost $9.8 million last year -- compared to $17.7 million in net gains it posted for 2008. Blue Cross controls about half of the insurance market in Montana.

While its directly insured customers declined, Blue Cross increased by 13 percent the number of people on self-insured plans that the company manages.

New West: This nonprofit insurer increased its premium income by more than 20 percent last year, from $80 million to $98 million. Its payouts also increased by a similar amount, leaving New West with a net gain for the year of about $650,000, down from last year's gains of $3.2 million.

It increased its insured customers by 2,600 people, up to 43,000.

-- Allegiance: Allegiance, a for-profit company whose parent firm is owned by Connecticut-based insurance giant Cigna, increased its premium income in 2009 by 75 percent, growing from $25 million to nearly $44 million. Its insured customers grew from 10,000 to nearly 15,000 last year.

However, its payment of medical claims ballooned even faster, going from $20.5 million in 2008 to $40 million last year. Allegiance ended up losing $5.7 million on its insurance business in 2009, but tax losses enabled it to post a net loss of $3.6 million.

All three insurers said they faced a higher-than-expected number of expensive claims in 2009.

Blue Cross said it covered 14 people with claims surpassing $500,000 and totaling $12.7 million, compared to just six such individuals in 2008, at a cost of $5.6 million.

New West also reported a doubling of the number its high-cost customers.

Blue Cross Chief Executive Officer Sherry Cladouhos said the company tries to project future medical costs for its customers and price insurance accordingly, and sometimes those projections don't match up.

"2009 is over," she said. "We are in the risk business. As we calculate future premiums, (we) will continue to reduce our overall administrative costs and continue to operate more efficiently."

Susan Witte, chief legal counsel for Allegiance, said insurers have reserves to cover deficits when claims exceed premium revenue, and that Allegiance is "adequately capitalized."

She also noted that Allegiance, as a for-profit company, has to pay a 2.75 percent premium tax on its business, while New West and Blue Cross are exempt from the tax.

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