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HHS Officials Applaud Blue Shield Rebate to Customers

By Rebecca Adams, CQ HealthBeat Associate Editor

Department of Health and Human Services Secretary Kathleen A. Sebelius praised the announcement of Blue Shield of California officials that they will limit the company's annual net income to 2 percent of revenue and will give $180 million of its 2010 income back through credits to customers and charitable contributions.

"This is a great step forward in lowering costs for the people of California, and we are pleased that Blue Shield is committed to providing better care at prices that better reflect underlying medical costs," Sebelius said

Blue Shield of California Chairman Bruce Bodaken announced the move at a speech at the Commonwealth Club in San Francisco.

"The action we're taking today is rooted in our longstanding commitment to universal coverage," Bodaken said. "Even with the passage of federal health reform, coverage will be denied to far too many. Only if we solve the seemingly intractable problem of rising health care costs will the dream of universal coverage truly be achieved. . . . Our pledge today tangibly demonstrates that Blue Shield puts affordability before profit."

The company, one of the largest insurers in the state, has come under fire in recent months - particularly from California Democratic congressional lawmakers—for big rate increases. And Bodaken himself has taken some heat for his $4.6 million 2010 salary.

The insurer said that the pledge would stay in effect unless the company's board of directors determines that Blue Shield does not have enough funds to stay competitive.

The excess $180 million will be given out in three ways.

First, about $167 million will go back to customers. The average individual customer will get a credit in October of about $80, and an average family of four will get about $250. For businesses in the small group market, the average individual worker will get $125 for one employee, and a family of four will get about $340. For larger businesses in the group market, employers will decide how to distribute the rebates to their workers, but the average credit will be $110–$130 per employee.

Another $10 million will help support California hospitals and physician groups in accountable care organizations.

And $3 million will be given to local nonprofit groups that provide health care to low-income Californians.

Sebelius noted that Blue Shield acted under pressure from two new rules created by the health care overhaul (PL 111-148, PL 111-152).

A new rate review rule requires insurers to explain premium rate increases over 10 percent and post that information on the Internet. HHS officials said they had given states additional resources to strengthen scrutiny of proposed premium increases or to help change laws so that they can block increases that are found to be too high.

Blue Shield also was required by a new medical loss ratio rule to spend a certain minimal amount of premium dollars on medical care or improvements in quality—80 percent for individual policies and 85 percent for big groups.

Sebelius did not suggest in her statement that California Blue Shield was violating either of the two new rules.

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