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Is health insurance rebate a real deal?

After two hefty increases, Blue Shield of California will give a little back to its policyholders. Critics say it's just a public relations blitz.

By doubleace Jun 15, 2011 6:08PM

This post comes from Lynn Mucken at MSN Money.


Is health insurer Blue Shield of California's announcement that it plans to cut this year's premiums by 2.5% for many of its policyholders a "great step forward," as U.S. Health and Human Services Secretary Kathleen Sebelius declared?


Or is it an "orchestrated spin campaign" by a company broadly lambasted for its recent premium increases and hefty executive salaries, as Wendell Potter of the Center for Public Integrity insists? 


The nonprofit insurer, with 3.3 million policyholders or about 10% of the California market, said the one-time rate reduction would be applied to bills in October, resulting in $167 million in savings for nearly 2 million customers.


The Los Angeles Times reported that individual policyholders will see an average one-time savings of $80 that month. It said reductions for a family of four will average $250, while premiums for business customers will be $110 to $130 lower per employee that month. Post continues after video.

Blue Shield also said it would refund  money to customers when its net income exceeds 2% of its annual revenue, according to the LA Times, which pegged that figure this year at $180 million. It said Blue Shield's net income last year was 3.1%. 


Getting money back on paid premiums can't be bad news, but Potter calls the reimbursement a "drop in the bucket." As evidence, he cites Blue Shield of California's recent history:

It got so much criticism earlier this year after it notified policyholders that their premiums would be going up by as much as 86% (in three increases over seven months) that it announced a few months later it changed its mind (on the final increase) ... "because we wanted to give our members the most affordable coverage we could."
Then last month, as a result of new disclosures required under federal health care reform, the company reported (that CEO Bruce) Bodaken … made $4.6 million last year -- four times more than his counterpart at Anthem Blue Cross, the one that's in the business to turn a profit. Blue Shield has 3.5 million policyholders in the state. Anthem has more than twice that many.
For solvency reasons, regulators require insurers to hold a certain amount of capital in reserve at all times. The National Association of Insurance Commissioners requires insurers to have a risk-based capital ratio of at least 200%. In an analysis of 44 nonprofit Blues in the U.S., Citigroup calculated that Blue Shield of California's risk-based capital ratio last year was 1,512%. That's not a typo. Blue Shield's ratio is more than seven times what the NAIC requires and three times the average ratio of the country’s for-profit plans. What that means in dollars and cents is that Blue Shield is now sitting on reserves of more than $3 billion.

Potter added that "because in many cases the credits will go to employer customers of Blue Shield rather than to the workers, many -- maybe most -- will never see a dime.

"According to a Blue Shield press release, 'Employers who pay part of the premium (for their workers) must decide whether and how to apportion it.' Translation: if you're enrolled in a Blue Shield of California plan, don't hold your breath waiting on your refund or you might turn as blue as your insurer's logo."

Blue Shield increased premiums for its small-business policyholders by 9% to 11% this year.

"Their announcement is an admission that they are making excessive profits," the Los Angeles Times quoted California Insurance Commissioner David Jones as saying. "It's just another example of how in California we are at the mercy of insurance companies."


"It's just strange for a nonprofit to have both incredibly large reserves and apparently substantial profit," Doug Heller, executive director of Santa Monica-based Consumer Watchdog, told the Times. "This is a hugely bloated company that would make many for-profit corporations blush."


California regulators must approve premium increases by property and auto insurers, but have no say in what health insurers charge. A bill to change that recently passed the state Assembly, but its future in the state Senate is unclear.


As CEO Bodaken noted, Blue Shield does have a history of supporting cost controls in the health industry. Its recent announcement said it also would give $10 million to support doctors and hospitals that cooperate to save money and improve medical results. Another $3 million would go to the Blue Shield of California Foundation, which makes grants to nonprofit organizations that provide care to those with low incomes.


According to the Times, the company proposed a universal health coverage plan in 2002, and in 2007 backed Gov. Arnold Schwarzenegger's plan to make health insurance available to all Californians. 


The California Public Employees' Retirement System praised Blue Shield's rebate plan. "We are pleased to see that … Blue Shield of California is making this commitment to improving affordability of care," Ann Boynton, a CalPERS benefits executive, told the Times. 


Altruism or public relations, Blue Shield is giving some money back to its policyholders. Will other health insurers do the same?


In an article in The Washington Post, Sheryl Skolnick, a financial analyst for CRT Capital Group in Stamford, Conn., was quoted as saying most insurers will not self-impose a cap on profits, but that some nonprofit insurers may try to "step up and match these rebates" to boost their image and generate new business.

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