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California Insurer Returning Premium Money in a Public Way

By Dena Bunis, CQ HealthBeat Managing Editor

October 13, 2011 -- Blue Shield of California announced that it would be returning $295 million to its customers this year, fulfilling its pledge to limit net income to 2 percent of revenue. White House officials credited the health care overhaul while at least one veteran analyst called the move a public relations stunt.

In a news release on its website, Blue Shield Chairman Bruce Bodaken outlined how the company would return the money to policyholders in the form of credits on their premiums. For example, Blue Shield individuals and fully insured group customers will each get a 54 percent credit against one month of premium. That translates into about a $135 credit for an individual and a $420 credit for a family of four.

"We made this pledge to help make coverage affordable for our members," Bodaken said in the statement. "Today's announcement provides more tangible evidence that we're putting affordability before profit. We hope our action will inspire others in the health care industry to look for ways to make quality health care more affordable."

In a White House blog post, Deputy Chief of Staff Nancy-Ann DeParle hailed Blue Shield's move and wrote about the rate review provision in the health care overhaul (PL 111-148, PL 11-152). DeParle also pointed to other examples in the past week of states weighing in on insurance company plans to raise rates. She said New Mexico's insurance superintendent rejected Blue Cross and Blue Shield's plan to raise rates by 9.9 percent, New York's superintendent of financial services is requiring insurers for the first time to publicly justify high rate hikes, and also in California, Kaiser Permanente is decreasing premiums for small businesses and providing credits to those who had paid higher rates. Those premium credits will total $13.7 million.

Since Sept. 1, the rate review provision requires insurers to justify any proposed premium rate increases of 10 percent or more.

"Before the Affordable Care Act became law, many insurance companies could raise your premiums without any transparency or accountability. If you wanted to know why your rates were going up, they were under no obligation to tell you. Thanks to the Affordable Care Act, that's all changing,'' DeParle wrote.

Bob Laszewski, a former health insurance executive and longtime consultant, called Blue Shield's move "great public relations." But it's money, he said, that policyholders would have gotten back over a period of time anyway, probably in the form of lower premiums. Blue Shield of California is a not-for-profit health plan so any profits it makes have to go into a surplus fund and when that fund gets too large the excess gets funneled back to clients, he said.

Laszewski also said that Blue Shield announced this payback plan in June when the California legislature was considering a bill that would have given the insurance commissioner the power to regulate rates. The measure died after the insurance industry, providers and some unions lobbied against it.

Blue Shield's announcement while the bill was under consideration, Laszewski said, "was part of a [public relations] campaign to undermine more rate regulation in the state of California."

And Laszewski doesn't believe other insurers will follow Blue Shield's lead.

"Other insurers are laughing at it as a PR joke,'' Laszewski said, adding that other companies are not in the corner Blue Shield thought they were in with the regulation bill being considering by the state legislature.

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