Blue Shield Plans To Cap Profits, Offer Rebates to Policyholders…ya gotta read this one…

On Tuesday, Blue Shield of California announced a plan to cap profits at 2% of revenue and allocate any excess funds as credits to policyholders, funding for health care providers and grants to not-for-profit health care organizations.

First Allocation

The not-for-profit insurer said it would jumpstart its new plan by distributing $180 million, the amount by which Blue Shield exceeded the 2% profit limit in 2010 (Smith, Sacramento Bee, 6/8).

Of the $180 million, Blue Shield said it would provide about $167 million to reduce costs for nearly two million policyholders. Under the plan, affected policyholders would see their October premiums decrease by about:

* $80 for individual policyholders;
* $250 for a family of four; and
* Between $110 and $130 per employee for businesses.

Blue Shield also plans to allocate $10 million of its excess profits to hospitals and physicians participating in programs aimed at improving care coordination. The remaining $3 million will go toward Blue Shield’s foundation.

Context of Announcement

Blue Shield’s announcement came as the state’s health insurance industry faces increased criticism from lawmakers, consumer advocates and policyholders over recent rate hikes (Sacramento Bee, 6/8).

In March, Blue Shield canceled the last of three rate increases in seven months following pressure from state Insurance Commissioner Dave Jones (D) and individual policyholders.

The insurer also has faced scrutiny over recent reports finding that it paid its CEO Bruce Bodaken $4.6 million in 2010 (Los Angeles Times, 6/8).


In a statement, HHS Secretary Kathleen Sebelius praised Blue Shield’s move as beneficial for policyholders. She also noted that the announcement “reinforces the importance of the Affordable Care Act and rigorous state review of insurance rates.”

Jones said, “The announcement is an admission by an insurer … that they are making excessive profits.” He added that Blue Shield’s action underscores the need for legislation (AB 52) that would allow state regulators to block excessive health insurance rate increases.

Some consumer advocates suggested that the announcement is a publicity stunt as the state Senate prepares to vote on AB 52.

Doug Heller, executive director of Consumer Watchdog, said Blue Shield is “spending this money as a lobbying campaign rather than an honest change in business practices. They are desperate to avoid regulating accountability”.

Betsy Imholz, special projects director for Consumers Union, said, “While we’re glad to hear Blue Shield of California’s cap on net income of 2%, it’s not a substitute for thorough review of insurance rates and public disclosure of insurer revenue and expenses”.

Editorial, Opinion Pieces

Summaries of an editorial and two opinion pieces on Blue Shield’s announcement are provided below:

Los Angeles Times : A Times editorial notes that Blue Shield’s profit cap “provides no guarantee … that Blue Shield is spending its premium dollars wisely.” However, it adds, “Blue Shield is working to develop more efficient methods of delivering and paying for care. If it succeeds, those efforts will be more important than the nonprofit’s new profit cap” (Los Angeles Times, 6/8).
Bruce Bodaken, San Francisco Chronicle: In a Chronicle opinion piece, Bodaken writes that the insurer plans to “limit our margins, provide credits to our customers, invest in the community and continue to look for ways to help individuals keep and afford their health care.” He continues, “The commitment we are announcing today is not a cure-all. But it is a prescription for more access, better health care and greater affordability” (Bodaken, San Francisco Chronicle, 6/7).
Jamie Court, San Francisco Chronicle: In a Chronicle opinion piece, Jamie Court, president of Consumer Watchdog, writes that the “real intent of CEO Bruce Bodaken’s announcement was to show the company is no longer the poster child for fast-moving legislation that would require every health insurance company in California to request permission from the elected insurance commissioner before raising rates.” Court adds, “Bodaken’s announcement is a last-ditch attempt to discourage legislators from giving the state insurance commissioner ‘prior approval’ authority” (Court, San Francisco Chronicle, 6/8)


Reader Comments:

Hatti Hamlin

I wonder how many families of four pay only $800 per month for individual coverage (if $250 represents a 30% credit, that’s the math.) Doesn’t seem likely to me–we have a high deductible plan paired with an HSA and the premium is nearly $1000–for a couple, not even a family of four. (And, no pre-existing/chronic conditions–we don’t even take any prescription drugs!) Are they capping the premium discount?

Greg Garrett

All the company has to do is pay more for travel, marketing, salaries, increase payments to selected providers, build more buildings, etc., which will decrease its “profits” but in reality, they could be raising premiums that whole time. The key is NOT to cap profits, but to CAP premiums and annual premium increases. There announcement is all smoke and mirrors and in truth is meaningless.


What is the essential difference between “for profit” and “non-profit” companies? Can’t a company determine it’s “profit” by allocating revenues to different “costs/internal investments”? What is the benefit to reducing healthcare costs from being a “non-profit”? Thanks.

O.K…My job is done. I feel like i have given you the complete scoop!! Now, you can all make an educational opinion for yourselves. I hope I have contributed in a small way to your Health Insurance knowledge. Please take a second to let me know what you think of today’s post.

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