WEISS RATINGS

Four Out of Five Blue Cross Blue Shield Plans
Losing Money In Their Underwriting

PALM BEACH GARDENS, Fla., August 19, 1999 — Forty-five, or 82%, of the nation's 55 Blue Cross Blue Shield plans incurred losses in their core underwriting business last year, according to a study by Weiss Ratings, Inc., the nation's only provider of ratings and analyses for all U.S. Blue Cross Blue Shield plans. However, 34 of those plans were able to cover their losses with investment income and securities gains.

Total underwriting losses for the industry were $835 million in 1998, as compared to $790 million in 1997. Investment income was $1.2 billion, unchanged from the prior year. Realized capital gains (money earned from the sale of profitable investments) increased 25% to $815 million from $651 million in 1997.

Plans suffering the largest operating losses during 1998 include:

Company Underwriting
Loss
($ Million)
Blue Cross Blue Shield of Minnesota 185.21
Highmark, Inc. (PA) 89.2
Health Care Service Corporation (Ill.) 77.6
Blue Cross Blue Shield of North Carolina 59.9
Excellus Health Plan, Inc. (N.Y.) 51.5

"As long as investment markets hold up, most of these plans should be okay financially," commented Martin D. Weiss, chairman of Weiss Ratings, Inc. "But if markets turn sour this year or next, we could see a rash of failures, causing serious disruptions to millions of consumers. In either case, consumers can expect more premium increases and cost-cutting efforts."

Data on individual lines of business, available for the first time in 1998 on 38 of the 55 Blues plans2, indicate that companies are losing money in all areas of their underwriting except dental care and Medicaid. This group lost a combined $404 million on comprehensive medical coverage, $115 million on administrative service contracts, $69 million on Medicare supplement insurance, and $36 million on the Federal Employee Health Benefit Plan.

Notable Upgrades and Downgrades

Weiss upgraded six Blues plans and downgraded seven based on an analysis of year-end 1998 data.

Notable upgrades include:

Company Previous
Rating
Current
Rating
Blue Cross Blue Shield of Massachusetts D C-
Associated Hospital Service of Maine D+ C-

Notable downgrades include:

Company Previous
Rating
Current
Rating
Noridian Mutual Insurance Company (N.D.) B C+
Blue Cross Blue Shield of New Mexico C D+

Dr. Weiss warns consumers to check the safety rating of Blue Cross Blue Shield and other health plans before joining and to monitor them periodically. Financially strapped plans may cut costs excessively, which would negatively impact the quality of care. In the event of a failure, the consumer could be left stranded without coverage.

The Weiss ratings of the Blues are based on an analysis of a company's risk-adjusted capital, five-year historical profitability, quality of investments, liquidity, and stability. The latter category combines a series of factors including asset growth, premium growth, strength of affiliate companies, and risk diversification.

Weiss has issued safety ratings on Blue Cross Blue Shield plans since 1992. In addition, the company analyzes 16,000 other institutions, including life and health insurers, property and casualty insurers, banks, and brokers. Separately, Weiss rates the Y2K preparedness of many insurers and banks, as well as the risk-adjusted performance of more than 5,000 mutual funds. Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from sales of its products to consumers, businesses, and libraries.

Consumers who need more information on the financial safety of a specific company may purchase a rating or analysis directly from Weiss for as little as $15 by calling 1-800-289-9222.

1This figure includes a one-time charge for a large tobacco settlement.
2Thirty-eight of the 55 plans are licensed as Hospital, Medical, Dental and Indemnity plans. These plans file a financial statement containing data by line of business.


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