From the Chicago Tribune

Moody’s Investors Service has downgraded the debt and financial-strength ratings of the parent of Chicago-based Blue Cross and Blue Shield of Illinois.

Moody’s Investors Service this week said Health Care Service Corp., the nation’s fourth-largest health insurance company, has been hampered by higher than expected medical costs driven by increased unemployment and layoffs that reduced membership in its plans. Those issues have hampered earnings growth, Moody’s said.

“The pressures on medical trend and membership growth are expected to continue during 2010, which will make it difficult for (Health Care Service Corp.) to regain earnings traction,” said Moody’s Senior Vice President Steve Zaharuk. “We expect (Health Care Service) to produce after-tax margins in the 2 percent to 3 percent range over 2010, and to continue to manage earnings at that level going forward.”

The Moody’s report offers a glimpse into the finances of Health Care Service, which is a private mutual insurance company owned by policyholders and does not release quarterly financial reports to the public. In contrast, its publicly-traded and investor-owned rivals in the health insurance industry file and issue regular quarterly reports.

Health Care Service has 12.5 million health plan members. It operates Blue Cross and Blue Shield health plans in Illinois, Texas, Oklahoma and New Mexico.

Health Care Service ratings on its $400 million in debt dropped one notch to A2 from A1, the fifth-highest on Moody’s scale of 21 ratings. Meanwhile, the insurer’s financial strength rating dropped to A1 from Aa3, the fourth-highest on Moody’s scale.

Moody’s said an upgrade of the insurer’s rating is “unlikely” in the near term given the uncertainties of the economy and the coming impact of health care reform.

“(Health Care Service) remains one of the strongest health insurers financially and maintains the highest debt rating in the industry,” the company said in a statement. “Like other health insurers, we have been affected by the economic climate and increased utilization. Because of careful and prudent management, HCSC maintains a strong balance sheet and continues to meet all of its policyholder obligations.”

The ratings are still high and keep Health Care Service’s debt at investment grade. Net earnings for the first nine months of 2009 were $423 million on total revenues of $14.8 billion, Moody’s said.