Did The Health Reform Law Pressure Blue Shield Of California To Cap Its Profits?

Maggie Mahar makes the case for how the Affordable Care Act — particularly the provision requiring insurers to spend a certain percentage of premium dollars on health care costs — prompted Blue Shield of California to voluntarily cap its net earnings at 2 percent of revenue and issue $180 million in rebates to beneficiaries and providers:

Did “soul-searching” lead to this decision? Perhaps. But I would suggest that Blue Shield is responding, in an enlightened and pragmatic way to a climate change within the healthcare industry.

Government regulators are beginning to take a hard look at insurance premiums. Blue Shield California “had recently come under fire by state regulators for rate hikes,” explains. “In March, the company abandoned plans to raise rates on individual policyholders for the rest of the year, under pressure from the California Department of Insurance.”

Blue Shield is trying to inoculate itself against further criticism (and regulation) by getting ahead of the regulators. $180 million is hardly a huge sum. But pledging to put a 2 percent cap on net income is a serious step forward. This should help curb premium inflation– assuming that the company doesn’t fudge the way it calculates “net income.” Though now that Blue Shield has made a public commitment, I would guess that state regulators will keep an eye on that number.

Consumer advocates are undoubtedly hoping that Blue Shield’s move will pressure other nonprofit health care plans to begin issuing their own rebates, particularly as consumers are now using less care and insurer reserves are only increasing.

In a statement issued yesterday, HHS Secretary Kathleen Sebelius praised Blue Shield and seemed to attribute the rebates to pressure from the Affordable Care Act. “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,” she said.