Converting to for-profit may not increase profits

A study finds health plan conversions don't guarantee increased efficiency.

By Robert Kazel, AMNews staff. May 19, 2003.

Despite the insistence by some Blue Cross and Blue Shield plans that converting to shareholder-owned companies is the way to thrive, a new report says hardly any difference exists between the financial performance of for-profit and nonprofit mutual Blues, and in some respects the traditional plans are more efficient.

"Profit margins of [nonprofit] mutual Blues plan and publicly traded Blues plans are essentially the same, so bingo, you don't necessarily have to convert," said Robert H. Booz, vice president of Hartford, Conn.-based Conning Research & Consulting, which tracks health insurance trends.

Booz's study gauged the financial performance of all Blues plans in the country for 2000 and 2001 to evaluate such measures as profit margin, administrative expense ratio and medical loss ratio. It found that, although total revenues of the for-profit plans were moderately higher, nonprofit plans as a group had equally good profit margins and did as good or better in key measures of efficiency.

Proponents of Blues conversion have said becoming for-profit allows them to preserve and grow profits faster, obtain technology, avoid unwanted takeovers and benefit through access to capital markets. More than a dozen plans have converted or are pursuing approval to do so.