“We are unequivocally putting affordability ahead of profit,” said Bruce Bodaken, chairman and CEO of Blue Shield of California, speaking at a telephone news conference. And executives at California’s third-largest insurer say they hope the decision—which is an outgrowth of its commitment to expanding coverage under the Patient Protection and Affordable Care Act—will challenge insurers and providers across the country to similarly focus on affordability.
“Everyone is going to need to do the kind of soul-searching we’ve done,” Bodaken said. “If our premiums go up it will be merely a function of our costs going up, it won’t be because our profits are going up,” he said.
The move may get the industry talking about the subject, but industry experts weren’t willing to say they believe not-for-profit insurers or hospitals will set their own hard limits on profit. “I think that this is a useful conversation to have,” said Marian Mulkey, director, health reform and public programs, for the California Healthcare Foundation, Oakland. But “I wouldn’t be overly optimistic that this is something that will sweep the industry,” she said.
Bruce McPherson, president and CEO of the Alliance for Advancing Nonprofit Health Care, a Washington association of not-for-profit organizations, said others could repeat the California insurer’s example but it will depend on individual circumstances. “It is very possible that others may follow suit,” he said.
Executives for the American Hospital Association, Chicago, and the California Hospital Association, Sacramento, declined to comment on the move, and America’s Health Insurance Plans, Washington, declined to comment on the prospect of insurers setting similar limits.
In addition to its stated goals of limiting healthcare costs and pushing others to do likewise, Blue Shield of California had other potential reasons for demonstrating a commitment to its members. In April, the California Department of Managed Health Care formally asked the insurer to explain rate increases for about 70,000 members covered by individual plans that averaged 37.5%, including an 18.8% hike that went into effect in January, and a 15.8% increase effective Oct. 1, 2010, according to the agency. The department later declared the increases to be unreasonable, though it had no power to do anything about it.
Meanwhile, Blue Shield of California was slammed in a Los Angeles Times article in May after the insurer reported 2010 salaries for its 10 highest executives to the state, and Bodaken’s pay clocked in at $4.6 million, which was more than four times the pay of the CEO of the state’s largest for-profit insurer, Anthem Blue Cross, a division of WellPoint, Indianapolis.
Company officials said at the news conference that the decision has been in the works for a long time and was unrelated to regulatory pressure and public backlash over premium-rate increases or disclosures of executive salaries.
Larger changes could have played into the move as well. Sara Collins, a vice president for the Commonwealth Fund, New York, noted that the way California set up its health insurance exchange, as well as other provisions of the Patient Protection and Affordable Care Act, may have affected the insurer’s decision and may influence others. The state of California has discretion to keep an insurer out of its health insurance exchange—a potentially lucrative avenue of growth for insurers—if the insurer is deemed to be not meeting California’s stricter standards.
Moreover, the threat of a rate review from the state or federal government begins Sept. 1 for all insurers if premiums in the individual and small group market increase by 10% or more (May 23, p. 12). That “certainly sheds a bright light on premium increases. That’s a pretty significant change and it’s looming,” Collins said. Similarly, ACA provisions will lead to the public reporting of the amount of insurer premiums spent directly on medical care next year, she added.
HHS Secretary Kathleen Sebelius and a major buyer of healthcare in California, the California Public Employees Retirement System, Sacramento, issued statements praising the decision, which for 2010 will result in a credit of $167 million back to individual and business customers. Employers have the option of keeping their portion refund but were encouraged to return it to employees.
Blue Shield also will provide $10 million in funding to California hospitals and physician groups to help them participate in accountable care organizations, and $3 million to the Blue Shield of California Foundation, which provides grants to local not-for-profit organizations that provide healthcare to low-income individuals.
Blue Shield executives said that historically, its targeted margin has been in the 2% to 5% range, and going forward any profits above 2% would be credited as a once-a-year payment.