Rate payers might benefit from healthy competition.

• Author: Roush, Chris
• Position: INSURANCE

During the past decade, with medical costs often rising double-digit percentages annually, some health insurers left the state rather than try to compete with Blue Cross and Blue Shield of North Carolina. In 1995, the Chapel Hill-based company claimed about 25% of the market for accident and health insurance. In 2005, it had 39%.

Medical inflation didn't disappear last year, but it slowed while health-insurance premiums rose 7.7%. Those trends were enough to bring some companies back. Hartford, Conn.-based Aetna returned to the small-business market in October after a five-year absence. WellPath Select, part of Bethesda, Md.-based Coventry Health Care, and Golden Rule, part of Minneapolis-based United HealthCare, began selling individual policies. Golden Rule left the state 10 years ago. "It's going to mean more choices," says Phil Gruber, president of Raleigh-based RPG Benefits Solutions, an insurance broker and consultant.

WellPath and Golden Rule have their work cut out for them. Blue Cross sells about 95% of the individual health-care policies in the state, many to the self-employed. "North Carolina has been in cycles before where there were a number of companies in the individual market, and they have not been successful because it's a difficult business," CEO Bob Greczyn says. Such policies produce low margins for insurers because of difficulty in spreading risk.

In November, the insurer said premiums for small businesses, about half of Blue Cross' customers, would increase by an average of 6.2% in the first quarter of this year. That's less than it sought from state regulators. But even at the old premium levels, Blue Cross has been financially fit. In the first nine months of 2006, revenue increased to $3.2 billion, up 13.5% from the period in 2005, though profits dipped less than 1% to $132.9 million. That might not be enough to satisfy lawmakers and patient advocates who have criticized the nonprofit for making too much money.

Property-and-casualty insurers tried but failed to push through increases in 2006. In February, Insurance Commissioner Jim Long ordered a retroactive 2.5% decrease for 2005 automobile-insurance premiums, and in April he ordered premiums cut 2.9% for 2006.

The industry got help from an unpredictable source: the weather. Last year produced no storms as damaging as hurricanes Katrina and Rita, which ravaged the Gulf Coast in 2005. In the first nine months of 2006, Chapel Hill-based James River Group netted...