Blue Cross parent's operating income slipped to $28.3 million in 2021

The parent company of Blue Cross and Blue Shield of Minnesota saw operating income slip last year to $28.3 million, down from prior year results that were boosted by a large legal settlement.

At the same time, net income in 2021 more than doubled with the $500 million sale of Further, a business for administering health savings accounts.

It was the third consecutive year that financial results at Eagan-based Blue Cross were significantly impacted by one-time factors. The nonprofit health insurer disclosed to the Star Tribune last week that a communication error over a one-time expense in 2019 led Blue Cross to list the wrong figure for pretax net income on a news release at the time.

"Financial performance was in line with our expectations for 2021, allowing us to provide reliable coverage to members and to make investments in the communities we serve," Dana Erickson, the president and chief executive at Blue Cross, said in a statement.

Blue Cross is the largest health insurer for Minnesotans with total enrollment of 2.7 million people at the end of last year.

Its nonprofit parent company, Aware Integrated, also owns several smaller businesses including an investment advisory, a life insurance company and a portion of Prime Therapeutics, a national pharmaceutical benefits manager based in Eagan.

Overall enrollment at Blue Cross is down about 7% from about 2.9 million people at the end of 2017. The decline speaks to what analysts say is one of the key challenges at Blue Cross: new entrants chipping away at its market share.

"When you're the big dog," Ungar said, "you're also the big target."

In 2021, Aware Integrated posted operating income of $28.3 million on $7.58 billion of revenue, down from the previous year's operating earnings of $162 million, according to a Star Tribune review of the company's audited financial statement.

In an April 1 news release, Aware Integrated listed an operating loss last year of $3.5 million, a decline from the operating income the previous year of $128 million. In both cases, the publicly reported figures for operating income were lower because Aware included operating losses at Further.

Because of the sale, net income jumped from $188.2 million in 2020 to last year's $433.8 million, according to a financial statement. The news release for Aware Integrated lists an even higher figure for net income in 2021 — $557.6 million — because it shows the earnings on a pretax basis.

The financial performance for continuing operations was "generally in line with the industry," Ungar said. The insurer continues to have lower earnings than for-profit health insurers, he said, in part because of its nonprofit mission.

To some extent, the decline has been offset by growing enrollment in the company's Medicaid HMO, which is funded by the state and federal governments to provide insurance for lower income residents. But the growth is largely a function of industrywide gains during the COVID-19 pandemic, since Medicaid programs have suspended re-determinations that normally would result in some people losing coverage.

It's not clear when re-determinations might resume, Ungar said, but it's expected to be triggered whenever the federal government officially ends the national public health emergency — an action that could come as soon as July.

In its February report, Moody's also cited significant turnover at Blue Cross among top leaders, calling management's "lack of a track record, especially given the challenges facing the company, a governance concern."

Blue Cross has "a lot of strengths," Ungar said in an interview. But he added: "It's not like there's an easy answer to Blue Cross and Blue Shield of Minnesota's attrition on the commercial membership."

The health insurance business at Blue Cross in 2020 benefited from a slowdown in health care visits due to COVID-19. In addition, the insurer won more than $200 million through a legal settlement over certain government payments owed to carriers for a portion of financial losses during the early years of the federal Affordable Care Act.

In the company's news release reporting 2019 financial results, Aware reported pretax net income of $153.3 million. The company told the Star Tribune last week that it should have excluded the one-time $80 million expense, which would have boosted pretax net income figure on the news release to about $233 million.