CareFirst's 2Q profit is up 66% to $40 million

Mired in controversy and, now, probed by federal investigators, CareFirst BlueCross BlueShield yesterday announced good news, of sorts - the insurer earned $40.8 million in the quarter that ended June 30, a 66 percent gain from the $24.6 million earned in the second quarter last year.

CareFirst said medical cost inflation had slowed, with the price of providing care for its members increasing only 5.2 percent over the second quarter in 2002. Increases had been in the double digits before the second quarter.


"Any slowdown in spiraling care costs is a welcome relief," said G. Mark Chaney, CareFirst's chief financial officer, in a statement announcing the results.

Revenue increased 8.8 percent to $1.84 billion from the $1.69 billion reported in the second quarter of 2002. And the company reported membership was up 4 percent, to 3.3 million.


But while improved profits would be happy news for most companies, it may serve as fuel for CareFirst's critics.

The company, nonprofit since its creation in 1937, sought unsuccessfully to convert to a for-profit operation and sell itself. That deal was blocked this year by the state's insurance commissioner, who said CareFirst was acting too much like its for-profit counterparts.

The state legislature passed reform legislation, and the U.S. attorney for Maryland is investigating the failed deal to convert and sell the company.

"Increased profits may not be a good sign, and may be the reverse of good public policy," W. Minor Carter, lobbyist for Maryland Cares!, said yesterday. His group opposed the conversion, and says it now wants CareFirst to return to its nonprofit mission.

"They can now use those profits to help people who need insurance, to cover high-risk people or to make [health insurance] policies more affordable," Carter said.

CareFirst's results are difficult to compare with those of publicly traded insurers - CareFirst provides much less detail, and nonprofit Blue Cross plans account for their revenue differently.

But Eric L. Veiel, a health analyst with Wachovia Securities in Baltimore, said the trend to smaller cost increases has been seen through out the industry.

"It's fair to say we've seen nationally, with almost every major player, a deceleration of costs," Veiel said yesterday. "It's been consistent through second-quarter results."


Some of the slowing in cost increases represents a shifting of costs to individuals through higher deductibles and co-payments, Veiel said.

Higher out-of-pocket costs might be causing some patients to defer care, but the savings could be temporary as patients decide later that treatment can't be put off any longer, he said.

CareFirst officials have generally talked little about the reform efforts and the investigation, and that reticence extended to the financial report as well.

The company declined to make officials available to answer questions about the earnings press release.

When asked for more detailed numbers on medical costs - for example, pharmacy costs compared to hospitalization expenses - its public relations staff said in an e-mail: "We are not prepared at this time to discuss any specific numbers not included in the release."