Crains Reports: Net income for the parent company of Blue Cross & Blue Shield of Illinois surged in the third quarter, a pace that will likely push the Chicago-based company past $1 billion in annual profits for the third straight year.

Health Care Service Corp.’s net income shot up nearly 46 percent, to $308.4 million, during the third quarter, from the third quarter of 2011, according to a new financial statement. Profits during the first nine months totaled $910.3 million, a hefty total but 1 percent less than in the same period last year.

In 2011, Health Care Service, which operates Blues plans in Texas, New Mexico and Oklahoma, as well as Illinois, racked up $1.20 billion in net income. The fourth-largest health insurer in the country, with 13 million members, made $1.09 billion in 2010. Barring an unusually weak fourth quarter, the company is likely pass the $1 billion mark again.

Health Care Service’s revenue rose 3.3 percent to $15.36 billion during the first three quarters of 2012 compared with 2011. The figures include only the company’s insurance operation, not its low-margin business processing claims for self-insured health plans. In 2011, the company got 49 percent of its premiums from Illinois.

Health Care Service, a mutual company owned by policyholders, is seemingly learning to adapt to new federal regulations requiring that health insurers spend more on claims and less on overhead. The requirement, which took effect last year, is a key part of the Obama administration’s overhaul of health care. Under that regulatory environment, a slight dip in net income is not surprising.

A Health Care Service spokesman attributed the lower net income to higher demand this year for medical services and drugs, called utilization in the insurance industry, compared with last year.

In down times, people tend to put off care to avoid out-of-pocket costs, creating pent-up demand. When the economy revives, utilization tends to creep up.
But some experts say people are still scrimping on health care costs, like co-pays.

“We’ve been all expecting (increased utilization), but I’m not sure we’ve seen it happen,” said Nancy Scola Lombaer, a partner at Laurus Strategies, a Chicago-based firm that advises employers on benefits.

Next year, Health Care Service could face a new challenge after announcing in September that it would acquire the non-profit Blue Cross & Blue Shield of Montana, that state’s largest health insurer, with about 270,000 members.

Blue Cross Montana lost $2.6 million through the first nine months of 2012 on revenue of $444.9 million.