In what it called a "bold move" to cut health care costs, Blue Shield of California said Tuesday it will cap profits at 2 percent of revenue and pump any extra cash back into credits for customers, funding to care providers and grant awards to nonprofits that provide health care to poor Californians.
"This doesn't solve the affordability problem, but it does represent a paradigm shift for a health plan," said Blue Shield Chief Executive Officer Bruce Bodaken, in prepared remarks ahead of a speech on the plan in San Francisco on Tuesday.
But Blue Shield's news was met with little more than a shrug from the state's insurance commissioner and deep skepticism from consumer advocates, who blasted the announcement as a publicity stunt ahead of a state Senate vote on whether to impose rate regulation on health insurers.
The controversial Assembly Bill 52, penned by Assemblyman Mike Feuer, D-Los Angeles, and lobbied for heavily by Insurance Commissioner Dave Jones, passed in the Assembly on Friday.
"They're spending this money as a lobbying campaign rather than an honest change in business practices," said Doug Heller, executive director of Consumer Watchdog and a vocal critic of Blue Shield. "They are desperate to avoid regulating accountability."
Blue Shield will start by giving back $180 million – the amount by which officials said the insurer exceeded its 2 percent target for 2010. Individual and business customers will get $167 million of that in the form of credits against their premiums – as much as 30 percent in some cases.
An additional $13 million will go to care providers and to health care nonprofits through grants awarded by Blue Shield's foundation.
Bodaken said the pledge sets an example for others to follow to reduce the cost of health care coverage.
"We hope that our commitment will inspire other participants in the health care system to do some soul-searching of their own," he said.
Commissioner Jones, who has made insurance rate regulation a cornerstone of his time in the office, politely thanked Blue Shield for its decision but called it an admission of excessive profit taking by the not-for-profit insurer and repeated his call for power to regulate rates.
"Why should insurance companies decide what excessive profits to return?" Jones asked, adding that Blue Shield took in $315 million in profit in 2010 and has cash reserves of about $3.5 billion.
Blue Shield's Bodaken said the insurer is "putting affordability ahead of profit" and argued its 2 percent pledge is a "huge break from the norm," saying profit margins for pharmaceutical companies, health information services, health plans and property insurers are two to three times higher.
Bodaken also said Blue Shield lost $24 million on individual coverage in 2010, even with increased premiums, calling the rates a product of a "broken and unsustainable system."
Blue Shield's plan comes as the California health insurance industry faces increased scrutiny and criticism from customers, consumer groups and lawmakers.
San Francisco-based Blue Shield in March called off a planned insurance rate increase scheduled for May after the insurer was widely criticized by angry ratepayers and consumer groups and was pressured by Jones.
The rate hike would have been the third since October 2010 and would have affected hundreds of thousands of customers who buy their insurance individually.
Commissioner Jones had already had Blue Shield and the rest of the state's largest health insurers in his sights, calling for delays in substantial rate hikes scheduled by the insurers until his office could review them and repeatedly calling for the power to regulate rates.
In late May, Blue Shield released salary information showing CEO Bodaken earned $4.6 million last year and that the insurer's top 10 executives earned a combined $14 million in 2010.
Contact The Bee's Darrell Smith, at (916) 321-1040 or [email protected]