Arkansas Blue Cross & Blue Shield’s remarkable 42.6 percent surge in revenue in 2014 over the previous year is mainly a result of the Affordable Care Act.
The health insurance company’s revenue jumped from $1.4 billion to $1.99 billion in 2014, posting the second highest percentage revenue increase on Arkansas Business’ list of the 75 largest private companies. It is No. 3 on the list of Arkansas’ largest private companies ranked by revenue.
The driver of the revenue growth was the 206,000 newly insured members who obtained coverage because of health care reform, Mark White, ABCBS’ president and CEO, recently told Arkansas Business from the company’s Little Rock headquarters.
“When we started off thinking about the ACA and the fact that there were half a million Arkansans who were without insurance, we anticipated there would be quite a bit of enrollment,” White said.
Those newly insured customers obtained their policies through the so-called “private option,” the health insurance exchange or bought health insurance on their own, White said.
Greg Hatcher, owner of the Little Rock insurance firm The Hatcher Agency, said the revenue rise “certainly makes sense. Anytime you add 200,000 more people you don’t have, that would do it. Health care reform has made more people buy insurance that didn’t have it before.”
ABCBS saw its total membership grow almost 40 percent to 626,471 in 2014.
Those newly insured also led ABCBS to create about 200 jobs, giving it a workforce of about 2,800.
Still, the nonprofit mutual insurance company faces choppy waters, including the soaring costs of specialty drugs (see High-Dollar Drugs) and the uncertain future of the private option.
Health care reform has been in the crosshairs of repeal attempts since it was signed into law in 2010. It has already survived one challenge at the U.S. Supreme Court, but the Supreme Court did throw out the part of the law that required states to expand Medicaid, primarily with federal dollars.
Arkansas accepted the federal money, crafting a unique approach to Medicaid expansion known as the private option, which uses those federal dollars to buy insurance for eligible Arkansans from private carriers — mainly Arkansas Blue Cross & Blue Shield, which offers group and individual health insurance.
After the ACA was signed into law in 2010, no one was sure what the impact would be.
“There are a lot of unknowns,” White told Arkansas Business in May 2012, two years after the law was approved.
One of the early concerns was that the newly insured would flood doctors’ offices, causing long waits for medical care. “That hasn’t proven to be the case,” White said recently.
Beginning Jan. 1, 2014, the centerpiece of the legislation known as Obamacare required individuals to have health insurance and offered financial assistance for those who couldn’t afford it on their own.
To gear up for the newly insured, ABCBS opened retail outlets where people can go to learn about health care policies. It also has opened temporary locations at Goodwill Industries of Arkansas’ stores around the state during the enrollment period.
That strategy proved to work. “We’ve done slightly better than we expected to,” White said.
Consumers usually stick with the providers they sign up with, unless there are rate increases or they aren’t happy with the insurer’s service, White said.
For 2015, ABCBS increased the premium for the ACA members by an average of 2 percent.
Profit Rises 22 Percent
As part of the ACA, insurance companies have to keep a closer eye on profits.
The act requires insurance companies to spend 80 percent of the premium collected on individual policies on medical care or send policyholders a refund. For group plans, it has to be 85 percent spent on medical care.
White said those percentages “are not unreasonable numbers to live with” and they haven’t created a challenge for the carrier.
ABCBS’ net income for 2014 was $46 million. That’s a 21.9 percent increase in profit, compared with the 42.6 percent increase in revenue, resulting in a slimmer margin. Its return on revenue in 2014 was 2.32 percent, down from 2.71 percent in 2013.
White said the uncertainty surrounding the funding of the private option has been a distraction to the company’s managers.
In March, 12 Republicans and four Democrats were named to a legislative task force to study the private option, which uses federal Medicaid expansion funds to buy private health insurance for Arkansans who earn up to 138 percent of the federal poverty level.
The federal government will pay all of the costs for the expansion through 2016, and then gradually decrease its share of the funding to 90 percent, leaving the state to pay 10 percent.
The task force is required to issue its recommendations by the end of this year. If major changes are made to the private option, insurance carriers won’t have much time to make adjustments for 2017 enrollment.
“So our task is to pay attention that we understand what’s going on and prepare for more than one possible option coming out of that process,” White said.
White said ABCBS isn’t getting into the middle of the politics of the private option.
Removing coverage under the private option would be unfair to the 206,000 Arkansans who now have health insurance, he said.
And even with the private option, about 250,000 Arkansans remain uninsured.
“From our perspective, we’re hoping that the program is not discontinued,” White said. “We’re not hoping that because, first and foremost, it creates business for us,” he said. “We’re hoping that, first and foremost, it puts us on a path to improve the health status of Arkansas.”