Blue Cross Blue Shield of Michigan to Cut 1,000 Jobs in 2009
In addition to the layoffs, it will cut senior executive pay, freeze wages and reduce spending on advertising and lobbying by 25 percent.
Facing projected financial losses that could exceed $1 billion over the next three years, Blue Cross Blue Shield of Michigan announced Friday, January 16, that it plans to eliminate 1,000 jobs this year, cut senior executive pay, freeze wages and reduce spending on advertising and lobbying by 25 percent.
The cuts also affect Blue Care Network, its HMO subsidiary. (For a related story, read "WellPoint Plans to Eliminate 1,500 Positions.")
Blue Cross also said it will seek average rate increases of 55 percent for individual plans, 42 percent for group conversion plans and 32 percent for Medicare supplemental plans, or Medigap.
Those three individual plans represent about 418,000 members.
“We should not ask our individual subscribers to pay more, without first demanding sacrifices from ourselves,” Blue Cross CEO Daniel Loepp said in a webcast to employees.
Blue Cross plans to cut senior executive salaries by an undetermined percentage and freeze pay for other executives. Blue Cross last froze executive pay in 2007.
“Our goal is to move forward as a strong and financially stable nonprofit company, committed to fulfilling our mission and delivering the best value in health insurance products and services to our customers,” Loepp said.
Based on expense reduction estimates, the Blues estimate that total cost savings over the next three years could total $300 million to $400 million.
“The actuaries are projecting cumulative losses of $1 billion,” said Andrew Hetzel, Blue Cross’ vice president for corporate communications. “[These cuts] will not get us all the way there, which is why we need the rate increases.”
Over the next 60 days, 400 employees will be laid off at Blue Cross and Blue Care, Loepp said. Based on the results of an ongoing performance improvement project, an additional 600 positions could be cut this year.
In October, Blue Cross laid off 130 workers as part of the process-improvement project it began in early 2008. The layoff included workers in various departments, including marketing and communications, where 14 workers were laid off.
Blue Cross said that in 2008 it lost $140 million on individual policies. It projects 2009 to be worse, estimating it will lose $320 million. This includes $210 million in medical underwriting losses and the state-mandated set-aside of $110 million in additional premiums to cover future losses.
The projected losses are based on actuarial assumptions and that Blue Cross receives some rate increases this year.
Hetzel said Blue Cross is having its company 2008 financials audited and said he does not know whether the company itself will post an overall profit.
“It is premature to make a comment on specific gains or losses,” Hetzel said. “We project to be very close to zero for 2008.”
In 2007, Blue Cross said net earnings declined 27 percent, to $152.2 million from $210 million in 2006. The Blues said 2007 marked the third consecutive year of lower earnings for the nonprofit health insurer.
“State law requires our individual products to be financially sustainable, but we will lose hundreds of millions on them this year,” Hetzel said. “Absent regulatory reform, we must turn to the rate-setting process for relief, and we must get new pricing soon.”
In December, the Michigan Legislature failed to act on two bills to reform the individual health insurance market that Blue Cross said was crucial to its financial stability. Officials had said tough decisions would need to be made in early 2009.
The losses are due to “the combined effects of a recessionary economy driving thousands of people into Michigan’s individual health insurance market, a broken regulatory system that requires [Blue Cross] to cover virtually all of the state’s costliest-to-insure individuals, and the increasing cost of health services,” Blue Cross said in a statement.
Other cost-cutting actions include:
• A freeze on salaries for nonunion workers.
• A request of the United Auto Workers to delay a 3 percent pay increase.
• A 25 percent reduction in discretionary spending.
• Cuts to programs funded by Blue Cross in local communities across Michigan.
“All of our actions are to preserve the financial health and stability of the Michigan Blues,” Hetzel said.
(For a related story, read "Cigna to Cut Jobs; Recession Cited."
Filed by Jay Greene of Crain’s Detoit Business, a sister publication of Workforce Management. To comment, e-mail firstname.lastname@example.org.
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