In a turnaround from earlier this year when it requested rate increases of more than 59 percent for some policy holders, Blue Shield of California announced yesterday it would limit its net income to no more than 2 percent of revenue.
The announcement, made by company CEO Bruce Bodaken in a speech to the Commonwealth Club here, comes as the insurer has come under intense public scrutiny for its proposed increases and as the state Senate is set to vote on a bill that would allow the California insurance commissioner to reject or modify health insurance rate increases deemed as excessive.
The pledge by Blue Shield is retroactive to 2010 revenue. Last year, net income exceeded the 2 percent threshold by $180 million, the bulk of which the company will return to customers via premium credits.
[See also: Blue Shield of California proposes 59 percent rate increase]
"Our pledge today tangibly demonstrates that Blue Shield puts affordability before profit. From now on we will set our rates to generate no more than 2 cents in profit for every dollar in revenue," said Bodaken. "If at the end of any year we wind up with net income above that amount because of lower-than-expected medical or administrative costs or higher-than-expected investment income, we'll return that amount to our customers and the community."
Insurance Commissioner Dave Jones, who as a state Assemblyman tried and failed three times to pass legislation giving his office the power to reject or modify health insurance rates was quick to chime in after the announcement.
"Their announcement is an admission that they are making excessive profits," Jones told the Los Angeles Times. "It's just another example of how in California we are at the mercy of insurance companies."
Whether other health plans follow suit with similar plans remains to be seen, but insurers in California aren't the only one feeling the potential of increased scrutiny on their rate requests. Last month, the U.S Department of Health and Human Services announced new rules for rate reviews and an expanded role in helping states regulate rate increases, even in states without such laws on the books.
[See also: New HHS regulation seeks to combat unreasonable premium increases]
HHS Secretary Kathleen Sebelius welcomed the announcement by Blue Shield of California, but noted it only benefitted those in the state who are covered by the non-profit health plan.
"While such voluntary efforts are great for Blue Shield's policyholders in California, today's announcement also reinforces the importance of the Affordable Care Act and rigorous state review of insurance rates," Sebelius said.
Bodaken, however noted that while limiting net income is one immediate way the insurer can help make health insurance more affordable to consumers, it still doesn't address the issue of skyrocketing healthcare costs.
"We know now that expanding access to coverage is not enough. Even with the passage of federal health reform, coverage will be denied to far too many," Bodaken said. "Only if we solve the seemingly intractable problem of rising healthcare costs will the dream of universal coverage truly be achieved."