BCBS Revenue Sources

Overview

BCBSA is an Illinois not-for-profit corporation that is funded primarily by its independent member companies (Blue companies) who are Licensees of BCBSA. There are four major types of funding sources; Annual Member Dues, Inter-Plan Programs, Optional Services and Government Programs. The chart below delineates how each area contributes to the total funding.

Annual Member Dues

Each year the BCBSA Board approves an operating budget that includes a specific amount of funding for dues supported programs that include brand development, brand protection, policy and representation, and governance and general administration of BCBSA. The annual dues funding amount approved by the Board is allocated to the member companies based on a formula that takes into account each Blue company's Blue-branded revenue and number of insurance contracts in force.

Inter-Plan Programs

All BCBSA Licensees are required to participate in the BlueCard Program, the primary program under the Inter-Plan Programs (IPP). IPP provides programs and services to support Blue companys' local and national account business. The BlueCard Program is a national claim routing and net settlement system for claims initiated outside of the individual Blue company's exclusive geographic service area. IPP generates revenue through transaction' based fees (rate per claim transaction), extra fees for performance that falls below established standards and by billing Blue companies for their direct usage of various services. If there is a surplus of revenues exceeding expenses in any given year, that surplus is retained by BCBSA and that equity is used to support future IPP funding requirements.

Optional Services

Member companies can elect to participate in various services provided by BCBSA. The financial target of the entire portfolio of Optional Services is to break-even or cover costs on a combined basis. If there is a combined surplus of revenues exceeding expenses or loss in any given year, it is retained as part of BCBSA's net assets. The following services are included in the Optional Services portfolio:

• BluesNet – A private data communications network operated by BCBSA for the member Plans. The BluesNet funding model is a combination of tiered pricing based in individual Plan initiated traffic into the network and fixed-fee arrangements specific to individual Plan service usage under a BCBSA contract with third-party telecommunications resellers.

• National Employee Benefits Administration (NEBA) – Provides employee benefit program services for defined contribution Blue companies 401(k), defined benefit retirement programs, and disability programs, along with executive benefits, retiree health and actuarial services. Funding is provided by participating Blue companies under cost reimbursement methodologies that reimburse actual costs incurred. The cost allocation methodology of general costs accounts for the number of each company's employee and retiree participants.

• Business Development – Establishes strategic business relationships with external companies. These business relationships range from national procurement contracts that can be used by the Blue companies for products or services acquisitions such as telecommunications services and computer software, to new business models for bringing new capabilities to companies. Funding is provided through administrative fees and revenue-sharing arrangements with external business partners.

• Senior Market Services – Supports Blue company development and delivery of products and services for the senior market segment and related government programs. Delivers strategic and operational support, products and services to Plan Medicare contractors through a Government Business Services subscription program that is funded by an annual subscription fee from participating companies. In addition, training courses are provided to Medicare fiscal intermediary, State Medicaid, CMS, and Medicare provider personnel. Training is funded by fees paid by personnel who attend the training courses.

• Conferences – Provides conferences, executive education programs and technical training for BCBS companies, subsidiaries and affiliates. Funding is generated from conference fees paid by individuals attending the various conferences and by cost reimbursement fees collected from other BCBSA program areas that sponsor program-specific conferences.

• Blue Quality Centers for Transplant (BQCT) – The Blue Quality Centers for Transplant (BQCT) consists of a national network of transplant centers that offer comprehensive services through a coordinated, streamlined referral management. All of the centers in the BQCT network meet specific participation criteria that consider not only provider qualifications and program process, but patient outcomes as well. These centers, in agreement with the BQCT, provide transplant services at favorable rates to companies. BQCT is funded by Participating Plans through an annual subscription fee based on company Blue-branded membership plus an access fee for each out-of-area transplant case.

• Strategic Consulting Services (SCS) – Provides dues-funded research on behalf of all Plans and fee-based consulting to individual companies. Typical types of fee-based consulting services include strategic planning, segment strategies, benchmarking and best practice identification and growth strategies. The dues-funded research frequently provides a context for the fee-based consulting services.

• International – Develops international programs and services to compliment domestic products offered by Blue companies, creates licensing relationships with Plans and/or private health insurance companies outside of the United States to protect and enhance the presence of the Blue Cross and Blue Shield Brands. Principle source of funding is royalty revenues from international Licensees.

• National Labor Office (NLO) – Supports Blue companies in the identification, acquisition and retention of labor accounts. Funding is generated by an annual membership dues and administrative fee revenue from third-party companies that are strategic alliance partners. If there is a surplus of revenues exceeding expenses in any given year, that surplus is retained by BCBSA and that equity is used to support future NLO funding requirements.

• BHI National Data Warehouse – Provides participating Blue companies with a national data warehouse that aggregates company claim data to produce healthcare informatics for national, regional and local comparative benchmarking, research, reporting and analytic capabilities. Funding is provided by participating Blue companies based on a budget apportionment formula that accounts for company Blue-branded membership. If there is a surplus of revenues exceeding expenses in any given year, that surplus is retained by BCBSA and that equity is used to support future BHI-funding requirements.

Government Programs

• Federal Employee Program (FEP) – Provides leadership in collaboration with Blue companies and OPM to assist and simplify the delivery of quality cost effective healthcare services to federal government subscribers. Funding is generated through a cost reimbursement federal contract with the Office of Personnel Management (OPM) plus an annual service charge fee agreement with OPM.

• Strategic Government Initiatives (SGI) – Manages BCBSA's contracts with the Centers for Medicare and Medicare Services (CMS) to administer Part A of the Medicare program and with the Health Resources and Services Administration (HRSA) to support the Children's Hospitals Graduate Medical Education (CHGME) program. Funding is generated by the Medicare cost reimbursement contract and the CHGME fixed-fee contract.