Health insurer Blue Shield says its initiative will result in $167 million in savings for nearly 2 million customers.
Health insurer Blue Shield of California, under fire for a series of recent rate hikes and the pay of its chief executive, plans to cut this year's premiums by 2.5% for many of its 3.3 million policyholders as part of a new initiative to hold down costs.
The nonprofit insurer, with about 10% of the California market, said the rate reduction would be applied to bills in October, resulting in $167 million in savings for nearly 2 million customers.
Consumer advocates said Blue Shield's announcement Tuesday may have been prompted by increased regulatory scrutiny. In March, the company canceled the last of three rate increases in seven months for individual policyholders amid pressure from customers and California's insurance commissioner.
Blue Shield Chief Executive Bruce Bodaken, however, said the rate reduction had been in the works since August and was part of a broader effort to make health coverage more accessible.
"We really focused on this being a long-term strategic decision," Bodaken said in a conference call with reporters. "It's going to take a long time to get to universal coverage and to affordability. It is clear that even with health reform, we all need to do more."
Under the initiative, most of the affected customers will see their October bills cut by nearly a third, which amounts to an annualized reduction of 2.5%. Individual policyholders will see an average savings of $80 that month, and a family of four will get an average $250 reduction. October premiums for business customers will drop about $110 to $130 per employee.
Blue Shield also pledged to return money to customers in future years when its net income exceeds 2% of its revenue, which amounts to $180 million this year.
Insurance Commissioner Dave Jones seized on Blue Shield's initiative to make his case for a bill in the Legislature that would give state insurance regulators authority to revise or reject excessive rate increases.
"Their announcement is an admission that they are making excessive profits," Jones said. "It's just another example of how in California we are at the mercy of insurance companies."
In addition to criticism for its rate hikes, Blue Shield has come under fire for Bodaken's $4.6-million salary — which it publicly disclosed for the first time last month in response to a new state law that requires insurers seeking higher premiums to reveal how much they pay their top executives.
Blue Shield, unlike other big health insurers in the state, including Anthem Blue Cross and Health Net Inc., is a nonprofit company. Yet some consumer advocates say they can't tell the difference between Blue Shield and its for-profit competitors.
"It's just strange for a nonprofit to have both incredibly large reserves and apparently substantial profit," said Doug Heller, executive director of Santa Monica-based Consumer Watchdog. "This is a hugely bloated company that would make many for-profit corporations blush."
Healthcare analysts largely give Blue Shield high marks for balancing competing interests that flow from its dual roles as a nonprofit that is supposed to serve the public good and as a major health insurance company with hefty returns that have swelled its reserve to more than $3.5 billion.
"You could almost say it's Dr. Jekyll and Mr. Hyde," said E. Richard Brown, director of the UCLA Center for Health Policy Research. "They have been supporting fairly progressive healthcare reforms. And at the same time, they have been a very profitable company, paying their officers very well. I think Blue Shield has managed that process much better than for-profit health insurers have."
Bodaken detailed the rate cut in a speech before the Commonwealth Club in San Francisco, where he said Blue Shield was "unequivocally putting affordability before profits."
"We are setting an example that may challenge others to consider changes they can make to reduce the cost of coverage as well," he said.
Bodaken's speech highlighted Blue Shield's pioneering — and sometimes contradictory — role in the debate over the cost and availability of healthcare.
The company proposed a universal health coverage plan in 2002. Four years later, it backed former Gov. Arnold Schwarzenegger's effort to expand health insurance for all Californians — an approach later championed nationally by President Obama and supported by the company.
On Tuesday, Bodaken emphasized Blue Shield's public mission, saying that insurance companies, hospitals, doctors and others in healthcare must do their part to stop costs from outpacing employee wages and putting medical care beyond the reach of millions of Americans.
"Affordability is the real gateway to achieving coverage for all," he told the San Francisco audience.
In addition to rate relief for customers, Blue Shield will give $10 million to support doctors and hospitals that coordinate their care to save money and improve health outcomes. An additional $3 million will go to the Blue Shield of California Foundation, which makes grants to nonprofit organizations that provide healthcare to low-income people.
The Blue Shield initiative was welcomed by U.S. Health and Human Services Secretary Kathleen Sebelius, who called it a "great step forward."
The California Public Employees' Retirement System also praised Blue Shield's pledge.
"We are pleased to see that … Blue Shield of California is making this commitment to improving affordability of care," said Ann Boynton, a CalPERS benefits executive.
But customer Michael Fraser of San Diego, a sports equipment designer who has followed the Blue Shield rate controversies closely, was less willing to credit the company.
"It's a small piece of good news," he said. "I'm curious if they would have acted on their own if the insurance commissioner hadn't shined a light on the situation."