2005 Annual Report_FINAL

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  1. 1. 1 essage from our President and CHIEF EXECUTIVE OFFICER Our commitment to be the regions premier health plan and determination to be a world-class organization produced a year of significant accomplishments and solid financial results for Horizon Blue Cross Blue Shield of New Jersey in 2005. The companys culture of execution allowed us to grow in an extremely competitive and challenging environment. This success is reflected not only in quantitative performance metrics, but also in external recognition of the positive impact Horizon BCBSNJ has on our customers, the industry and the community. We are proud of the companys top ranking, for the third year in a row, in the 2005 New Jersey HMO Performance Report. Another measure of our success is gaining and retaining customers. During 2005, enrollment grew by 106,000 members, raising the companys total to over 3.2 million members. At the same time, the company retained over 97 percent of its members, which was the second highest retention percentage of all Blue Cross and Blue Shield Plans with similar levels of local market share. M
  2. 2. 2 In 2005, the company also achieved solid financial results. Total revenues for the year climbed to $6 billion from $5.5 billion in 2004. Underwriting income, which excludes investment income, was $120.9 million. After tax operating earnings were $219.8 million in 2005, representing a margin of 3.6 percent of total revenue. In order to protect our 3.2 million members from unforeseen health care costs, even in the case of a natural disaster, avian flu epidemic or terrorist attack, we continue to maintain a prudent level of capital reserves. At year-end 2005, this safety net for our members stood at nearly $1.3 billion. To put this number in context, in 2005 Horizon BCBSNJ paid out $9.3 billion in total medical claims, including $4.8 billion for fully-insured members. Horizon BCBSNJ engages independent actuarial experts to validate that the companys level of capital reserves is adequate to provide security to our 3.2 million members. MAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORK Strong growth in total membership reflects the markets recognition of Horizon Blue Cross Blue Shield of New Jerseys commitment to providing our customers with affordable, quality health care coverage and excellence in customer service. ENROLLMENT GROWTH
  3. 3. 3 The companys financial strength enabled it to maintain A ratings from Standard and Poors (S&P), a leading credit and financial ratings organization, and from Weiss Ratings, which tracks health and life insurers across the country. These ratings not only provide assurance to our group and individual customers of Horizon BCBSNJs stability, but also are a requirement to win the business of many major employers who will only do business with A rated health plans. One of the key strategic decisions made in 2005 was the choice not to pursue a conversion of the company to a for-profit corporation. After lengthy discussions about this possibility, it became clear that conversion could not be accomplished in a satisfactory manner that would have enabled the company to retain its Blue Cross and Blue Shield license, a major strategic asset. An unfortunate external event for the company and its customers during 2005 was the increase of certain state taxes levied due to a revision of New Jersey tax law. This revision prevents Horizon BCBSNJ from applying established tax law principles used by all other insurers in the state of New Jersey. The result is an incremental tax increase of $35 million over 2004. This increase unfairly targets Horizon BCBSNJ members and exacerbates the health care cost crisis facing New Jersey. The company is challenging this tax law revision in the courts. Throughout 2005, the company remained focused on what is most important: serving the customers who depend on us everyday. SERVING CUSTOMERS AND PROMOTING HEALTH Horizon BCBSNJs focus on serving our customers has allowed the company to grow in nearly every market in which we compete. Our customers have come to depend on the companys dedication to both world-class service and clinical quality. Our customers have come to depend on the companys dedication to both world-class service and clinical quality. MAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORK
  4. 4. 4 In the area of customer service, we have focused on delivering a world-class experience using process redesign and innovative technology to drive improvements. These efforts are yielding significant results. According to a member survey conducted in late 2005, 85 percent of Horizon BCBSNJ members were satisfied or highly satisfied. While we always see room for improvement, this result is significantly ahead of the competition and compares with a national average of 76 percent and a mid-Atlantic (New York, New Jersey and Pennsylvania) average of 80 percent. In less visible areas, we also continue to deliver high performance. For example, Horizon BCBSNJs mailroom received the United States Postal Service certification for Mail Preparation Total Quality Management with a perfect score of 100 percent. For our customers that means improved efficiency and reduced mail time. We recognize that delivering a world-class customer experience requires operational excellence throughout the end-to-end processes that impact our members, group customers, physicians, hospitals and other important stakeholders. We are in the third year of an ambitious process redesign effort, and are continuing to evaluate how we do our work across the enterprise in the interest of becoming more effective and efficient. In 2005, we continued in our commitment to the health of our members, and the quality of care received across New Jersey. Our World Class Clinical Quality Program emphasizes preventive care as an essential part of helping our members get healthy and stay healthy. From reminders about important screenings to case management for serious conditions, Horizon BCBSNJs Health and Wellness Education Program provides our members with the most up-to-date medical information about their condition as well as information about the most effective evidence-based treatments to help improve their quality of life. Horizon BCBSNJ provides treatment programs for eligible members with chronic conditions such as asthma, diabetes, chronic kidney disease, According to a member survey conducted in late 2005, 85 percent of Horizon BCBSNJ members were satisfied or highly satisfied ... this result is significantly ahead of the competition and compares with a national average of 76 percent. MAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORK
  5. 5. 5 heart failure, depression and coronary artery disease. Our member outreach program, which employs call technology developed by Eliza Corporation, was selected by Harvard Medical School and the Blue Cross and Blue Shield Association to receive a BlueWorks Award for the innovative and effective way we remind our members to get their flu shots and important health screenings, such as mammograms. Combating obesity was also a priority for Horizon BCBSNJ in 2005. Health experts estimate that approximately 130 million Americans, or 64 percent of the U.S. population, are overweight or obese. Nearly 60 percent of all American adults do not get the recommended amount of exercise, and nearly 25 percent do not exercise at all. Obesity can lead to, and aggravate, other chronic health conditions including heart disease, hypertension and diabetes. Obesity also adds to health care costs. In New Jersey alone, $2.34 billion is spent on health care related to obesity, the tenth highest amount in the nation. American children are now battling obesity and its devastating consequences. More young children and adolescents are being diagnosed with health problems that were once considered only adult concerns, such as high blood pressure, Type 2 Diabetes and heart disease. Obesity now rivals smoking and substance abuse as a key concern for parents. With our Shape It Up program, we continued to address childhood obesity by reaching out to over 150 schools and more than 51,000 New Jersey students through an innovative and engaging program that teaches nutrition and exercise to encourage and inspire them for a lifetime of good health. In 2005, Horizon BCBSNJ expanded this program to include Shape It Up Days, in which follow-up sessions were conducted for students in partnership with local minor league baseball teams. Programs like Shape It Up are helping to change the publics perception of what it takes to achieve good health and how individual actions are perhaps the most critical factor in realizing that goal. MAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORKMAKINGHEALTHCAREWORK
  6. 6. 6 Partnering with the medical community is another effective way Horizon BCBSNJ promotes good health. As part of our $5 million Horizon Health Connections initiative, we developed the New Jersey Infection Prevention Partnership Program for our network hospitals. According to the Centers for Disease Control and Prevention, approximately 6 percent of all hospital patients acquire an infection during their hospital stay that results in almost half of all major patient complications in hospitals. Hospital-acquired infections are responsible for approximately 88,000 deaths a year. To prevent hospital-acquired infections, Horizon BCBSNJ and several of our network hospitals are working with MedMined, Inc. to combine data mining and artificial intelligence in a program that has proved highly effective in other states. For our network physicians, the Horizon Health Connections initiative has focused on increasing the use of technology to reduce costs and increase efficiency and safety. To