Insurance firm limits income to 2 percent

June 8, 2011

By Daniel Weintraub

Hoping to lead an industry push toward more affordable health insurance, Blue Shield of California will voluntarily limit its net income to no more than 2 percent of its revenue, company executives said Tuesday.

The cap will be retroactive, leading the company to let go of $180 million in income from 2010 that exceeded the self-imposed limit.

Most of that money will be returned to customers in rebates. The rest will be given to health care providers that work with the company’s customers and to the firm’s non-profit foundation, which will invest it in community projects to improve the health of Californians.

“We will make coverage a bit more affordable for our members,” said Bruce Bodaken, Blue Shield’s chairman and CEO. “Affordability is the gateway to universal coverage and to the success of federal health reform.”

The announcement comes as the Legislature considers a proposal to regulate health insurance rates the same way California has long controlled rates for automobile coverage. The insurance industry has strongly opposed that proposal, arguing that most of the money they collect from customers is simply passed on to doctors, hospitals, drug companies and other players in the health care market.

Bodaken said the company’s pledge to cap its income is not related to the Legislative debate but is part of a long-term plan to make coverage more affordable. He said this is the first time a health insurance plan has made such a promise, which he called a “paradigm shift.”

Company officials said the rebates would be issued in October and would average about $80 for individuals and $250 for a family of four.

Bodaken publicly urged other health insurance companies to follow Blue Shield’s lead, but he acknowledged that his firm, as a non-profit, would find it easier to limit its income. For-profit companies have to satisfy shareholders, who typically expect profits greater than two cents on the dollar. Blue Shield’s income has averaged 3 percent to 4 percent over the past decade.

Consumer advocates reacted cautiously to the announcement, praising Blue Shield but insisting that rate regulation is still needed in California.

Anthony Wright, executive director of Health Access California, noted that Blue Shield has raised its rates significantly in recent years and the rebates would roll back only a portion of those charges. He also said the company’s definition of revenues, costs and income would need to be scrutinized.

“The oversight of the new federal law has ushered in new accountability on insurers, but we needed additional state authority and action to make the promise real,” Wright said. “We need to pass the pending rate regulation bill to ensure that California consumers don’t get overcharged on the front end, by Blue Shield or any other insurer.”

Note: The Blue Shield of California Foundation is a sponsor of HealthyCal.org.

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