California Blue Shield pledges $180 million in rebates

The money will go to customer credits, public health and ACOs. The insurer will limit annual income, but doesn't guarantee it won't raise rates again.

By — Posted June 20, 2011

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Blue Shield of California has pledged that the nonprofit health plan will limit its annual net income to 2% of revenue.

The company's pledge takes effect for its 2010 income. It will credit $167 million of its 2010 income to current customers, who can use the credits toward future insurance purchases. For individual subscribers, those credits will range from $25 to $160, and from $130 to $415 for a family of four. Employers who pay for workers' coverage will be credited between $110 and $130 per employee.

Blue Shield also will give an additional $10 million to fund accountable care organizations and send $3 million to its charitable foundation to spend on public health.

Blue Shield Chief Executive Officer Bruce Bodaken announced the company's decision June 7 in a speech delivered at the Commonwealth Club, a public forum in San Francisco.

"So I'm a health plan CEO pledging to make health care more affordable," he said. "I know that sounds like something you're more likely to hear at a comedy club than the Commonwealth Club. But despite the current image of health plans as culprits behind the health care crisis, Blue Shield is working hard on many fronts to be part of the solution."

Blue Shield's pledge does come with a caveat -- the 2% promise holds only as long as "the company's board of directors determines that Blue Shield remains financially solvent, with sufficient funds to make the investments needed to stay competitive." The company said it might have to raise rates in the future.

But Bodaken said, "When our members receive a rate increase in the future, they will know that it's not so we can make more money."

Credit to health reform law?

U.S. Secretary of Health and Human Services Kathleen Sebelius welcomed the company's announcement and suggested that the Patient Protection and Affordable Care Act helped prompt the company's decision.

"While such voluntary efforts are great for Blue Shield's policyholders in California, today's announcement also reinforces the importance of the Affordable Care Act and rigorous state review of insurance rates," she said.

Whether other insurers will follow Blue Shield depends in part on regulatory and public pressure, said Steven Wallace, PhD, professor of public health and associate director of the Center for Health Policy Research at the University of California, Los Angeles.

"What happens in California is looked at nationally, and often but not always followed," he said. "Definitely it will have an impact on California. Its impact nationally is less certain."

Bodaken talked about the health reform law in his speech, but didn't say whether it was directly responsible for the company's decision to limit income. He said reform will expand access, but won't be enough to make sure everyone is covered.

"Here's the brutal reality: In the past decade, California HMO rates rose an average of 11% per year. Even if we reduce that trend to 8%, premiums will double by 2020. That means our comprehensive benefit package will cost nearly $40,000 for a family of four," he said. "By contrast, wages in California are on track to rise by just 50% to an average of $75,000 in 2020. The simple fact is that unless premiums track wage increases more closely, the number of uninsured will snowball, undermining the coverage gains made by health reform."

He also explained how the company determined that it had excess income even though it was proposing to raise rates by as much as 59% on 193,000 individual subscribers as recently as March. The company later withdrew that request. Bodaken said the company still lost $24 million on its individual business in 2010 but that those losses were offset by investment gains and employer-sponsored business.

"While the credit we are announcing today is not as large as some of the rate increases our members have received in the past year, it demonstrates that we are doing all we can to keep coverage affordable."

Medical-loss ratio rules

Blue Shield of California, like every health plan in the country, is required under the health system reform law to spend a set minimum on care. Health insurers must spend 80% or 85% of its premiums on health care -- depending on the size of the insured group -- under medical-loss ratio minimums that took effect in January.

The requirements were credited with prompting rate reductions recently announced for nearly 10,000 Aetna customers in Connecticut. Policyholders will pay premiums an average of 10% lower for their health insurance beginning in September, in a rare case of rate reduction.

As part of the health reform law, Blue Shield of California and other health insurers are subject to federal oversight of rate increases. Even in states like California, where insurance regulators do not have the authority to reject unreasonable rate hikes, federal authorities can intervene.

The California Legislature is again considering granting the state insurance commissioner power to reject rate hikes. The state Assembly approved the measure a week before Blue Shield's announcement.

"Bodaken's announcement is a last-ditch attempt to discourage legislators from giving the state insurance commissioner 'prior approval' authority, which would allow the commissioner to stop proposed rate increases in the individual and group markets," Consumer Watchdog President Jamie Court wrote in an editorial in the San Francisco Chronicle.

Robert Zirkelbach, spokesman for insurer trade group America's Health Insurance Plans, responded to Blue Shield's announcement with the group's oft-repeated stance that insurers have a relatively narrow profit margin that is a small part of overall health care spending.

"Health plans are doing everything they can to keep coverage as affordable as possible for consumers and employers. The track record clearly shows that this is an efficient, low-margin industry and that rising medical costs are the primary drivers of premium increases."

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