Blue Shield of California returning millions of dollars to customers
Blue Shield of California, a health insurance plan with 3.3 million members, is voluntarily giving back millions of dollars to its customers after deciding to cap its profit at 2 percent of annual revenue.
Based on Blue Shield of California exceeding the 2 percent profit target by $180 million in 2010, the health insurer is returning $167 million to its individual and business customers. The rest of the excess profit — $13 million — will be earmarked for hospitals, physician groups and nonprofit organizations.
In the future, if Blue Shield of California winds up with annual profit above the 2 percent limit because of lower-than-expected medical or administrative costs or higher-than-expected investment income, the surplus will be returned to customers and the community.
In 2011, Blue Shield posted $315 million in profit on $10 billion in revenue. Although Blue Shield is a nonprofit insurer, it is allowed to accumulate excess profit.
Blue Shield has faced criticism after it was revealed that Bodaken received a $4.6 million paycheck in 2010 and after the company imposed health insurance premium hikes that eventually were canceled.
In Blue Shield’s first round of rebates, the average individual customer will get about $80 and an average family of four will get about $250. For groups covering up to 50 employees, the average amount will be about $125 for one employee and about $340 for a family of four.
The rebates will appear in customers’ October 2011 insurance bills. In many cases, the rebate will represent a 30 percent reduction in October’s premium.
‘Dream of universal coverage’
In a June 7, 2011, speech, Blue Shield of California Chairman and CEO Bruce Bodaken said the decision to cap annual profit “is rooted in our longstanding commitment to universal coverage.”
“We know now that expanding access to coverage is not enough. Even with the passage of federal health reform, coverage will be denied to far too many. Only if we solve the seemingly intractable problem of rising health care costs will the dream of universal coverage truly be achieved,” Bodaken said.
U.S. Health and Human Services Secretary Kathleen Sebelius applauded Blue Shield’s action.
“This is a great step forward in lowering costs for the people of California,” Sebelius said in a statement, “and we are pleased that Blue Shield is committed to providing better care at prices that better reflect underlying medical costs.”
Consumer advocates, however, aren’t all that impressed with Blue Shield’s move.
Doug Heller, executive director of California-based Consumer Watchdog, told the Los Angeles Times that Blue Shield of California “is a hugely bloated company that would make many for-profit corporations blush.”
State Insurance Commissioner Dave Jones was quoted by the Los Angeles Times as saying: “Their announcement is an admission that they are making excessive profits. It’s just another example of how in California we are at the mercy of insurance companies.”