Blue Shield of California recently pledged to cap their annual profits at 2% of revenue and to refund any additional income to their customers and the community each year. Bruce Bodaken, Blue Shield’s CEO, announced that Blue Shield will return $167 million to customers through a 30% credit on their October insurance bills. This refund represents an annual premium reduction of 2.5%.
This is a major policy decision and a significant commitment to Blue Shield’s customers and health care providers. But the press has responded with distrust and criticism. Wendell Potter, former CIGNA executive turned health reform advocate and industry blogger, sees the pledge as an “orchestrated spin campaign” and believes that this year’s $167 million dollar refund is, “little more than a drop in the bucket of what [Blue Shield] really could afford to give back.”
Other reports have noted the pledge comes after the terrible publicity Blue Shield received for its planned individual health insurance rate increases. Blue Shield rolled back those increases under pressure from Insurance Commissioner Dave Jones. Now, Blue Shield, as well as other insurers, is opposing AB 52 which would give the California insurance commissioner the authority to actually reject premium increases deemed to be unreasonable.
Clearly, the 2% pledge is motivated by Blue Shield’s determination to change its image in the eyes of customers and the media. Bodaken acknowledged that, “most people suspect that profiteering by health insurers is a major factor behind the high cost of health care.” He stated that, “this suspicion is more than just a PR problem. It hinders our ability to work with others toward solutions to the affordability problem.”
I believe the 2% pledge is a highly significant policy commitment. It will help alleviate the distrust in the community and build productive relationships with health care providers. It should give Blue Shield more credibility in its pricing negotiations with doctors and hospitals. Providers may now have some confidence that pricing concessions will directly benefit customers rather than increase Blue Shield’s profits. During an off the record conversation with one East Bay hospital administrator, I was told that the tenor of their negotiations has already changed.
Proving itself to be a credible partner will also help Blue Shield to continue to develop innovative collaborations with providers that have the potential to both reduce costs and improve care. An example of such a program is the Accountable Care Organization formed by Blue Shield in collaboration with Catholic Healthcare West and Hill Physicians, which serves more than 40,000 CalPERS members. It has saved more than $15 million in its first year.
With the 2% pledge, Blue Shield is looking both to address the affordability of insurance premiums and to establish a competitive advantage in the marketplace. An insurer with significantly lower costs and lower profit goals (the average for-profit health insurance company return is 4.6%) will be able to charge lower premiums than its competitors and attract new customers.
While the long term gains may be substantial, our clients are looking for immediate premium savings. What is the short term benefit? This policy begins to bring some transparency to insurance pricing. Blue Shield will calculate premiums based on its 2% target. Customers will know that they will receive another refund next year if Blue Shield’s claims costs are less than anticipated.
We see the pledge as a positive step forward in the greater restructuring of the health care and health insurance landscape brought about by the new health reform law. We will report on other insurers’ new products and initiatives in future posts.
Golly. I could actually read and comprehend an article about medical insurance strategies. My compliments to Shargel & Co.
Posted by: Carolynn Abst | July 14, 2011 at 03:31 PM