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Vermont Business Magazine, Mar 01, 1998 by J, Kevin

Blue Cross/Blue Shield of Vermont appears to be catching its breath after years of scrambling to keep pace with the rapid restructuring of the health care industry.

Preston Jordon, the company's 61-year-old president and CEO, has taken advantage of the current calm to announce his intention to retire later this year. The Berlin-based insurer has begun a national search to fill its top post. Blue Cross will not disclose Jordan's annual salary nor will it say what his successor might be paid.

Jordan's six-year tenure has been a period of growth "in virtually every facet" of operations, the nonprofit company reports. In addition to increasing enrollment by 35 percent, the Vermont Blues experienced "significant improvement in financial performance." Having last year co-founded the first Vermont-based health maintenance organization, the state's largest private health insurer is now establishing a services company to be jointly operated with the Blues of Maine and Rhode Island. The Legacy Services Company is designed to reduce operating costs by sharing resources among the three New England Blues.

State regulators offer a guardedly favorable appraisal of the Vermont Blues' recent record and current condition.

"In terms of both finances and services." says Steven Kappl, an analyst for the state's health care agency, "they've been doing better than in the past, but they have more work to do." Kappel and other monitors want the insurer to continue expanding its reserves, which now total about $20 million.

According to Vermont Blues spokesman Kevin Goddard, that amount includes a projected $2 million increase for 1997 -- the product of the company's return to the black after losing money in the mid-'90s. But a portion of the $20 million reserve is "analogous to a loan," notes Kappel, "and we'd like to see it paid off."

Both Goddard and Kappel are dismissive of the "D", or "weak." grade given to the Vermont Blues last summer by an industry rating group. "We don't take it very seriously," Kappel says of the score tabulated by Florida-based Weiss Ratings, Inc. The "D" actually represents an improvement over the "E" grade that the Vermont Blues received earlier from Weiss, but both those ratings are based on criteria that should not be applied to such a relatively small insurer, says Kappel.

"There's no way we can build reserves to the level that Weiss thinks we should," adds Goddard. With revenues of roughly $250 million and expenses of around $248 million, the Vermont Blues operate within an extremely narrow margin, says the corporate spokesman. Reserves can be increased only incrementally, Goddard argues, due to the company's status as one of the smallest Blue Cross entities in the United States.

But no private health insurer is bigger in Vermont. Blue Cross' ability to retain its 180,000 state enrollees suggests it's "doing something right, from the customers' point of view," Kappel observes.

A comparatively high degree of consumer satisfaction with the Vermont Blues was measured in a recent Gallup poll. Goddard says that in the fourth quarter of 1997, the Vermont company was found to lead all other Blues in customer approval. The findings were based on a set of questions asked of individuals calling the respective companies service departments.

Some subscribers nevertheless do grumble about the rate increases imposed by the Vermont Blues in recent years.

These have averaged in the 9 to 13 percent range, says Goddard. But in 1998, he adds, the company's single largest category of customers -- those covered as members of groups of 50 or more -- will experience an average premium hike of 4 to six percent. A specific group, however, could still be hit with an increase of 12 percent or more as a result of its higher-than-average costs to the insurer.

Rate rises for 1998 will be substantial for both elderly and "non-group" members -- far above the general inflation rate.

The higher premiums of recent years are "as much the industry's problem as Blue Cross' problem," remarks Kappel. He notes that rates have risen at about the same clip for Vermont's other large insurers: MVP and the Community Health Plan.

Kappel also implies that complaints about the cost of health insurance may be somewhat unjustified.

"Nobody ever goes on about how they've paid car insurance for 20 years and aren't getting anything back from it." Goddard further suggests that at least some consumers are becoming more tolerant of the costs of health care coverage. "People's appetite for medical treatment has certainly grown," he says, "and as their expectations increase, there may be greater understanding of the need to pay more."

For its own part, the company does expect rate escalation to slow as cost-containment measures become more effective. Goddard says savings are already visible in The Vermont Health Plan, the HMO that the Blues established a year ago along with Fletcher Allen Health Care and the Rutland Regional Medical Center.

TVHP, as it's known, now has slightly more than 11,000 members, almost all of them situated in he western counties of Vermont. But its reach and size will soon increase as a result of an agreement reached with Hitchcock Alliance, the Hanover, NH-based health care entity that spans the Connecticut River Valley. TVHP also expects to forge a partnership with Central Vermont Hospital, thus establishing a presence in that part of the state as well.