Blue Cross/Blue Shield of North Carolina Slashing Administrative Costs Ahead Of Implementation

Roger Collier points to this story detailing how Blue Cross/Blue Shield of North Carolina is shedding administrative costs in preparation for the new medical loss ratio requirements and what could become a more competitive environment within the exchanges. According to the Charlotte Observer, the company will “slash its administrative costs by 20% by 2014“:

Blue Cross expects to carve about $200 million from its annual $1 billion budget by eliminating open positions, attrition and early retirements, streamlining operations, and taking other steps to reduce expenses, said CEO Brad Wilson. He warned workers in a memorandum of “tough challenges” ahead.

The nonprofit also plans to review its real-estate portfolio, which includes more than 1 million square feet of Blue Cross offices, mostly in Durham and Chapel Hill. “Over time, Blue Cross will be a smaller company,” Wilson said in an interview.

He would not rule out layoffs among its 4,400 or so employees, most in the Triangle, but said he hopes Blue Cross can avoid them. Still, “no one can guarantee full, permanent employment in perpetuity,” he added.

Blue Cross also will work with hospitals and other providers to reduce surging medical costs. That will include some “tough negotiations” with hospital systems and others statewide, he said.

The National Association of Insurance Commissioners (NAIC) — the insurance industry funded group tasked with making recommendations to HHS about the medical-loss ratio standards in the new health care law — is still working on its final recommendations, which are expected to come out later this month, but it’s promising to see that insurers are adjusting their business models in anticipation of the new regulations. Wilson’s recognition that insurers need to do a better job of negotiating with providers is particularly promising.

AHIP has been claiming for years that its members are lowering administrative spending (“In fact, last year, the percentage of premiums that went toward
administrative costs and profits declined for the sixth consecutive year – from 13.67 percent in 2003 to 11.15 percent in 2009“), which may be true. But stories like these demonstrate that there are a lot more places where waste can be trimmed.