Blue Cross wasn't only one singing the blues.

• Position: Insurance

State Insurance Commissioner Jim Long has made a career of battling insurance companies. In mid-2003, he was gearing up for one of his biggest tests. Blue Cross and Blue Shield of North Carolina, the state's largest health insurer, wanted to become a for-profit company and had spent more than 18 months--and $18 million--getting ready.

But in July, Blue Cross gave up, saying that it faced too many potential restrictions--including caps on executive pay and limits on premium increases. "It appeared it would be a very difficult road if we continued to pursue it," spokesman Kyle Marshall says. "It just made sense to pull the plug."

If only it could have just pulled the plug on another matter before the Department of Insurance. In December, after months of negotiation, Long fined the company $1.8 million--the largest penalty in the department's history. According to the consent order Blue Cross signed, it mishandled emergency-room claims totaling about $17 million, including interest, over a five-year period--and it failed to fix the problem once it knew, or should have known, what was happening.

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Despite the distractions, Blue Cross kept making money, posting net income of $173.1 million through the first three quarters of 2003, up 140% from a year earlier. Most of the state's largest HMOs did well, too. Many had expected health-care costs to rise about 20% and raised premiums accordingly, then managed to keep cost increases below expectations. United HealthCare posted net income of $40.2 million through the first three quarters, up from $32.6 million a year earlier, and Partners National Health Plans, a separately reporting unit of Blue Cross, recorded a $21.4 million profit, up from $20.5 million. Cigna HealthCare bucked the trend, losing $6.4 million. A year earlier, it was $4.4 million in the black.

Other Tar Heel insurers had a harder time making money than the HMOs. Property-and-casualty insurance companies, which came out of the big, storm-related claims of the last few years in good shape, got sideswiped by the slow economy and low interest rates, which ate into investment income. Premiums soared on business insurance, with smaller increases on the more tightly regulated personal lines. "Companies are more selective on what they will write," says Bo Walker of Walker Robinson Clark in Statesville and president-elect of the Independent Insurance Agents of North Carolina. "Over the last 18 to 24 months, we have been...