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Blue Shield of CA Announces $180M Refund, Cap on Income

 |  By Margaret@example.com  
   June 08, 2011

Vowing to help solve the problem of rising healthcare costs, Blue Shield of California said Tuesday it will  limit its income to 2% of revenue and hand back about $180 million to policyholders, physicians, hospitals and the Blue Shield Foundation.

The pledge was made during a teleconference with Blue Shield CEO Bruce Bodaken, and Paul Markovitz, the company's executive vice president and COO.

Bodaken, whose salary was $4.6 million last year, said the company is taking the step to help "solve the seemingly intractable problem of rising healthcare costs."

Calling the cap a "paradigm shift for a health plan" Bodaken added that he hoped other health plans would follow suit.

He said the company began considering this step last summer. When the 2010 margin came in at 3.1% the company board decided to retroactively begin the program in 2010 rather than wait for the 2011 numbers. When company profits exceed 2% of revenue, Bodaken explained, a credit will be distributed each October to customers who are fully insured by Blue Shield in the previous May.

The average credit depends on monthly premiums:
  • Individual customers will be credited an average $80. For a family of four the average credit will be about $250.
  • Group customers will be credited between $110 to $130 per employee. Employers who pay part of the premium will decide whether and how to apportion the credit.
  • Small groups (2 to 50 employees) will be credited $125 per employee and about $340 for a family of four.

The announcement comes on the heels of the passage by the California Assembly of AB52, which would give state regulators the power to reject or modify excessive health insurance premium increases. The bill now moves to the state Senate.

Blue Shield COO Markovich conceded that the credits were not as large as some of the rate increases recently requested by Blue Shield but said the move demonstrates the insurer's commitment to "do all we can to make healthcare affordable."

In March Blue Shield withdrew a request that would have boosted premium rates by as much as 17% for some of its members.

Markovich stated that in the past the insurer has posted margins in the 2% to 5% range. He said the company will remain committed to the 2% cap as long Blue Shield can remain financially solvent and make the investments necessary to stay competitive.

Bodaken, responding to questions, said the credit was not related to the Affordable Care Act's medical loss ratio requirement that health plans spend at least 80% of premium revenue on reimbursements for clinical services and activities that improve health care quality. Health plans that don't meet that requirement may have to provide rebates to their customers "We have no idea if we will need to pay a rebate next year or not. This credit reflects our longstanding opinion that healthcare is a right."

Blue Shield posted net income of $315 million in 2010 on revenues of $10 billion.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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