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Business Review Western MI
Business Review Western MI
Priority Up..Blues Down
(wgvu) - Priority earnings up, Blues down

Sept. 6, 2007

By Mark Sanchez

Priority Health posted significantly higher earnings for its HMO through
the first six months of 2007, amid a solid underwriting gain, flat
revenues and another membership decline.

Earnings at Blue Cross Blue Shield of Michigan and its HMO subsidiary,
Blue Care Network, were off sharply, driven down by underwriting losses.

The results reflect Blue Cross Blue Shield and Blue Care Network's
practice of using reserves and investment income to support operations
and keep annual premium adjustments below the medical claims cost trend
that outlooks expect to remain at about 10 percent into 2008.

Premium rate increases are going up at a slower rate than benefit
expense trends. This was planned, Blue Cross spokeswoman Helen Stojic

At Priority Health, net income through midyear totaled $15.1 million, up
65.3 percent from the $9.1 million as of midyear in 2006, a period that
included a difficult second quarter.

The Grand Rapids-based health plan reported midyear revenues of $692.2
million, generating a $6.3 million underwriting gain, according to a
quarterly financial report filed with state regulators.

That compares with a small $723,087 underwriting gain a year earlier on
revenues of $692.2 million.

Investments earned $8.5 million through June 30 of this year.
The financial data reported to the Michigan Office of Financial and
Insurance Services included restated figures from 2006 to reflect
Priority Health's acquisition of the former Southfield-based Care
Choices HMO this spring.

Priority Health continues to operate in line with its financial plan for
the year, Chief Financial Officer Greg Hawkins said. The underwriting
margin is less than desired, though Hawkins anticipated steady
improvement through 2007.

For the most part, this is what we anticipate for the remainder of the
year, Hawkins said of the midyear results.

The improved financial performance came as Priority Health's HMO
membership continued to decline, hitting 405,636 as of June 30, down
from 436,357 a year earlier.

Hawkins attributed the decline to job losses, employers dropping health
coverage and companies shifting workers into other products such as
Priority's PPO plan.

Blue Cross reported net income of $83.4 million, down 27.3 percent from
the $110.7 million a year earlier.

The Blues posted a net underwriting loss of $29.4 million as of June 30,
which compares to an underwriting gain of $47.3 million in the
prior-year period.

The insurer made $109.1 million on investments, versus $82.8 million at
midyear 2006.

Blue Care Network also reported an underwriting loss with lower
earnings, higher membership and an 11.8 percent increase in revenues, to
$856.0 million.

Blue Care Network's net income totaled $8.7 million, down 38.3 percent
from the $14.2 million at midyear 2006.

As a result, Blue Care Network posted a $3.3 million underwriting loss
for the first six months of 2007, which compares to a small $90,760
underwriting gain a year earlier.
Investment income totaled $12.5 million, down 17.9 percent from $15.2
million as of June 30, 2006.

Grand Valley Health Plan, a small Grand Rapids HMO with 10,215 members,
reported net income of $334,023, which compares to a net loss of $67,216
a year earlier.

Mark Sanchez
Business Review Western Michigan
800 N. Monroe
Grand Rapids, Mich. 49503
Direct: 616-222-5832
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