Blue Cross Millionaires are Scared to Compete With a Public Plan
May 25, 2009 by Dean Baker
".....Specifically, the administrative expenses of a public plan like Medicare are far lower than the expenses for Blue Cross of North Carolina. According to its Annual Report, Blue Cross of North Carolina spent almost 15 percent of its premiums on administrative expenses in 2008. That came to more than $1.8 billion. This money would have been enough to cover the costs of insuring almost 600,000 kids through the State Children's Health Insurance Program (SCHIP). Just five years earlier, Blue Cross of North Carolina spent more than 22 percent of premiums on administrative expenses.
By comparison, Medicare spends only about 2 percent of its revenue on administrative expenses. Unlike Blue Cross of North Carolina, Medicare doesn't earn profits and doesn't pay high salaries to its top executives. According to the Raleigh News and Observer, Robert J. Greczyn Jr., the chief executive of Blue Cross of North Carolina, earned $3.2 million in 2007. That's enough to pay for a year's worth of SCHIP for 1,000 kids. Other top executives also drew salaries well in excess of $1 million, a pay range that exceeds the top levels in the public sector by an order of magnitude.
Given the high salaries that Blue Cross of North Carolina pays its top executives and the other administrative expenses that it bears as a result of being a private sector plan with high overhead, it is not surprising that it would be afraid of a public plan. A public plan would likely charge much lower prices, thereby pulling away a large share of Blue Cross of North Carolina's business. Insofar as it was able to hold on to its patients, Blue Cross of North Carolina would probably be forced to lower its prices - slashing its profit margins - in order to be able to compete. This is not a happy picture for any business: fewer customers and lower profit margins.
The answer, of course, is tough love. We just have to tell Blue Cross of North Carolina than it will have to learn to compete. If it can't beat out a public plan in market competition, then the public and the economy would be better served if it went into another line of business. ..."