After spending much of the past year under a microscope amid criticism for proposed rate hikes and executive compensation, Blue Shield of California has taken steps to rehabilitate its image – including a pledge to limit net income to no more than 2 percent of revenue.
The new policy was introduced by company CEO and Chairman Bruce Bodaken in a June op-ed piece in the San Francisco Chronicle.
"We are committed to the 2 percent pledge so long as our board of directors determines that Blue Shield remains financially solvent, with sufficient funds to make the investments needed to stay competitive," he said.
The move by the non-profit insurer comes as it looks to turn around a string of news reports that have tarnished the company's image. In early January, Blue Shield proposed rate increases for as many as 200,000 individual policy holders that would have seen some members' rates jump as much as 59 percent.
Amid intense public scrutiny and pressure from the California Department of Insurance, Blue Shield backed down in mid-March from the planned increase.
Insurance Commissioner Dave Jones has used the planned increases by Blue Shield to stump for AB 52, a bill moving its way through the California State Legislature that aims to give the commissioner authority to reject insurance rate increases deemed as unreasonable. Current law only allows the office to review proposed increases.
While the pledge to limit its income to 2 percent of total revenue was welcome news, Jones is keeping the pressure on. "Their announcement is an admission that they are making excessive profits," he said. "It's just another example of how in California we are at the mercy of insurance companies."
Reaction to Blue Shield's announcement has been mixed in the state. Some contend that the timing of the announcement – only a couple of days after AB 52 cleared its first hurdle in the state Assembly – is part of an effort to defeat the bill.
"The real intent of CEO Bruce Bodaken's announcement was to show the company is no longer the poster child for fast-moving legislation that would require every health insurance company in California to request permission from the elected insurance commissioner before raising rates," said Jamie Court, president of advocacy group Consumer Watchdog.
Officials at Blue Shield, however, contend the timing was coincidental.
According to Paul Markovich, Blue Shield of California's COO, the company reviewed its 2010 financials in April, then presented them to the board in May to get approval for the new policy limiting net income.
"Legislative debates are going to come and go. This isn't the first year we've debated rate regulation and, if it doesn't pass this year, it won't be the last time we debate rate regulation," said Markovich.
Some are willing to take Blue Shield's strategy at face value. "Yes, Blue Shield, like other health insurance companies, is opposing state regulation as proposed by Assemblyman Mike Feuer, D-Los Angeles, in his Assembly Bill 52," stated a June 10 editorial in the Sacramento Bee. "But there is no evidence that the company took the step for any reason other than its stated point – that healthcare costs must come down."
To that end, Blue Shield is hoping its stance can be used as an example to others in the healthcare industry.
"We'd like everyone to do the same kind of soul-searching we did and have the same kind of urgency that we feel in trying to find solutions to the affordability crisis," said Markovich.