June 14, 2011

Not-for-Profit Entity Blue Shield of California Announces Cap on Profit

With health care costs rising for both insurers and consumers alike, it seems like rate "adjustments" are always going upward, and we never actually hear about rate reductions.    Blue Shield of California recently revealed that they will cap their profits.  Specifically, they have made a commitment to keep only 2% of net revenue, dispersing any additional funds back to policyholders and the community. While this is not the long term lowering of rates many would like to see, it is a step in the right direction. In an op-ed piece in the San Francisco Chronicle, Blue Shield of California Chairman and CEO Bruce Bodaken declared:

"If at the end of any year our net income is more than 2 percent because medical costs were lower or investment income was higher than we had projected, we'll return that amount to our members and the community. This is a long-term commitment and, we believe, the first of its kind in the country. We are committed to the 2 percent pledge"

He went on to enumerate exactly how this would be handled for the 2010 business year:

"We will apply this new policy beginning with our income in 2010, the year health reform was enacted. Our net income last year exceeded the 2 percent target by $180 million. As a result, we will give back $180 million this year: $167 million to our policyholders; $10 million to physicians and hospitals that invest in new ways to coordinate care through accountable care organizations; and $3 million to the Blue Shield of California Foundation to support the safety net."

To the surprise of many, especially those who have received rate increases in the last year, Mr. Bodaken admitted that this rebate was not enough to satisfy policyholders or Blue Shield alike, as he called on others in the industry to follow his lead:

"While we are taking this action to help our customers pay for their health care coverage, we know that this is not enough. We have long advocated for health care reform to expand coverage, reduce costs and improve quality. We have developed innovative programs to restrain the rising cost of medical care, but we can't make a major dent in rising health care costs on our own.
That's because making coverage affordable is not something any company can do by itself. We all need to take better care of ourselves. Insurers, hospitals, drug companies, physicians and government must look inward, think creatively and take bold action to reduce costs. That's what we're doing - and we invite others to join us."

It will be interesting to see if others heed Mr. Bodaken's call, or simply dismiss his Op-Ed as unnecessary and redundant.  Blue Shield of California is, after all, a not-for-profit organization.  Should their declaration to limit profits really garner such headlines?