BSCA Revenue Cap Draws Mixed Reactions

The announcement by Blue Shield of California this week that it will voluntarily limit its earnings to 2% of its revenue is garnering mixed reviews from industry analysts and consumer advocates. On Wednesday the Blues plan said it will return any excess revenue over 2% to many of its 3.3 million policyholders and providers. This year it will return about $180 million.

"Anytime an insurer voluntarily refunds money to a consumer is a good thing," stated Gerald F. Kominski, PhD, associate director of the UCLA Center for Health Plan Research in an interview with HealthLeaders Media.

Kominski isn't sure if other competitors will emulate the Blue Shield action. "If the health insurance industry worked like other big industries, then price-cutting by one major player would be followed by others in the industry. But group rates are locked in for 12 months at a time, so it isn't as if a company can immediately switch to Blue Shield."

There's no doubt, he says, that this is a great public relations move by the insurer. "I think it actually increases their bargaining position in terms of contracting with physicians and hospitals. They can say 'Look at us; we did this. We're limiting our profits and you want us to pay you more?' They can probably earn back in contracting what this costs them."

The Blue Shield announcement garnered attention from Washington, D.C. where U.S. Health and Human Services Secretary Kathleen Sebelius praised the action in a press statement calling it a "great step forward" and noting the health insurer's commitment to "providing better care at prices that better reflect underlying medical costs."

Closer to home however, politicians and consumer advocates weren't as kind. In an e-mail exchange, a spokesperson for the California Department of Insurance said that DOI commissioner Dave Jones would not release a statement specific to Blue Shield's latest announcement.

She did, however, provide a statement Jones made during earlier media interviews: "Blue Shield's announcement is essentially an admission by the insurer that it is…making excessive profits. This non-profit insurer more than doubled its profits from $148 million in 2009 to $315 million in 2010. If anything, Blue Shield's announcement simply serves to underscore, yet again, why the insurance commissioner needs the authority to reject excessive health insurance rate hikes in California."

Jones supported AB 52, a California bill, which would give his office the power to review and reject insurance rate hikes. The bill passed through the legislature this week and awaits the governor's signature. 

In an editorial in the San Francisco Chronicle, Jamie Court, the president of Consumer Watchdog, called the 2% announcement a "last-ditch attempt to discourage legislators" from passing AB 52. "For a not-for-profit health insurance company like Blue Shield, which has more than $3.6 billion in reserves, that's 2% too much."

The company's reserve of $3.6 billion is a sticking point. The DOI's Jones said the $3.6 billion is considerably in excess of what is required to meet state financial solvency requirements. In media interviews he has said the amount begins the question. "If Blue Shield has this much in its reserves, then why is it not giving more money back to its policyholders?"

Consumers Union reported in 2010 that over the past decade, nonprofit Blue Cross and Blue Shield health insurers across the country stockpiled billions of dollars in surplus--while raising premiums for consumers by as high as 20% annually.

The CU report may be downloaded here.