Behind BSCA's 2% Solution
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."
- CMS Offers Some ACOs $114M for 'Upfront' Costs
- WellPoint Dominates Nearly Half of Markets, AMA Says
- Ebola: Second TX Nurse Diagnosed After Improper Protective Gear Application
- Ebola: A Call for Designated Hospitals
- 16 Medicare Advantage Plans Earn 5-Star Ratings
- Providers Ask HHS to Address EHR Interoperability Barriers
- 76% of Nurses Say No Ebola Policy Communicated by Hospitals
- The Drug Price Reform Debate
- CDC admits to mistakes in Ebola protocol
- CMS' new investment model will help ACOs with health IT