Health Plans
e-Newsletter
Intelligence Unit Special Reports Special Events Subscribe Sponsored Departments Follow Us

Twitter Facebook LinkedIn RSS

Behind BSCA's 2% Solution

Margaret Dick Tocknell, for HealthLeaders Media, June 15, 2011

The message was consistent: Blue Shield is taking this step to help make healthcare affordable.

But as optimistic as I want to be, almost a week later a couple of things still bother me about this announcement – what's magical about 2%? And what does any of this have to do with lowering healthcare costs?

In an e-mail statement, Jonny Wong, a Blue Shield spokesperson, said the 2% reflects what the company needs to "make sure we remain strong and viable well into the future, we determined that 2% was the appropriate amount based on several factors. We need to preserve our ability to pay claims, garner an A rating from rating agencies, finance capital improvements like IT and other infrastructure investments, and maintain a prudent reserve for the unexpected, such as earthquakes, pandemics, or public policy changes."

I decided to pose the 2% question to a healthcare analyst who understands the nuts and bolts of health plan finances a lot better than I do. Uwe E. Reinhardt, a Princeton professor and an authority on healthcare economics, fit the bill. He suggested in an e-mail exchange that the 2% is probably close to what Blue Shield estimates will be its average margin over the long run anyway.

A 2% to 3% margin is actually common among nonprofits. Blue Shield's margin in 2010 was 3.1% and so its board decided to make its first round of refunds based on that margin.

Reinhardt said the 2% isn't much as a percent of the premiums paid, but it's a lot as a percent of Blue Shield's value added. He explained that "usually, an insurer pays 80% to 85% of the premium for health benefits. Those are just pass-through costs. There is no reason why an insurer should earn any profits on those costs at all."

1 | 2 | 3 | 4

Comments are moderated. Please be patient.