Independence Blue Cross had smaller operating profit in 2023 as drug and other costs rose

The parent company of Independence Blue Cross, the Philadelphia region’s largest health insurer, reported a significant decline in operating profit last year as expense growth for pricey new drugs and increased use of health services outpaced strong revenue growth.

The Center City company said Tuesday that its operating profit was $388 million in 2023, down 32.5% from 2022. But its total revenue climbed 13.6%, to more than $31 billion. Net income more than doubled to $377 million, thanks to a huge swing from investment income as the strong stock market and high interest rates bolstered returns.

Given the financial disruption health systems experienced during the COVID-19 pandemic and its aftermath, IBX reworked and in many cases extended contracts with many systems. IBX also dealt with changes in the Medicaid market, as pandemic-era rules ended.

“In some instances, the new agreements include slightly higher increases in what we pay in the early years in exchange for longer-term stability,” said CEO Gregory E. Deavens. “We want to continue to collaborate with our provider partners, not compete with them or operate in their space the way some health plans do.”

Virtually all of IBX’s businesses are for-profit and pay taxes, though its highest-level holding company is a Pennsylvania nonprofit corporation. The company said it paid more than $1 billion in taxes and fees last year.

IBX has been ending its business relationships with the cross-state rival Highmark, another large Blue Cross Blue Shield company that is based in Pittsburgh. Highmark became a direct competitor to IBX this year in the Philadelphia market.

IBX switched to Dominion Dental from Highmark’s United Concordia for dental insurance. It also moved Highmark to a new provider of backup insurance for employers that pay directly for their employees’ health care.

Among the notable increases in drug costs were the expanded use of GLP-1s, such as Ozempic and Wegovy, to treat diabetes and severe obesity. Newer and more expensive cancer drugs, such as Merck’s Keytruda, also added to higher pharmaceutical costs.

“The rates of cancer haven’t necessarily gone up, it’s just the use of different drugs for those treatments,” said Juan Lopez, IBX’s chief financial officer.

IBX’s biggest business by far is in Medicaid, which it manages through AmeriHealth Caritas, a joint venture with Blue Cross Blue Shield of Michigan.

Caritas’ overall Medicaid enrollment fell 3.3% to about 2.9 million nationwide, as states were required to resume checking if people qualified for Medicaid when the COVID public health emergency ended last year. Across the Medicaid managed-care industry, the range of enrollment losses from that so-called redetermination was 6% to 11%, Lopez said.

“Caritas was right in the middle at about 8% over that ‘23 period. That was lower than our projected redetermination losses,” he said.