Why Blue Shield’s Decision To Cap Income Is So Significant

The Los Angeles Times has a more skeptical reading of why Blue Shield of California has chosen to voluntarily cap its net income and provide rebates to customers, arguing that the move is “richer in symbolism than in economic impact” and is “designed to deflect scrutiny and blame from insurers onto others in the industry, particularly doctors and hospitals”:

The point of the cap, Bodaken said, is to assure Blue Shield’s customers that its rate increases aren’t intended to fatten the company’s reserves. That’s true in an overall sense. The cap provides no guarantee, however, that Blue Shield is spending its premium dollars wisely — witness Bodaken’s $4.6 million salary, which is more than four times what the chief executive of his largest for-profit rival makes.

Nor does it give the company more incentive to hold down the rates it pays doctors and hospitals, whose cost increases can be passed on to consumers. As insurers have argued repeatedly, the main factor in rising premiums is treatment costs driven ever higher by increased demand for care and expensive new drugs and technologies.

All this sounds fair, and if Blue Shield’s actions can be used as an opportunity to go after provider rates or to pass legislation giving regulators greater authority to police premium increases, then it’s even more important than the LA Times is suggesting.

But this also strikes me as significant because rather than using the interim period between passage of the Affordable Care Act and when most of the insurance regulations are enacted in 2014 to increase profits and force the sickest (and costliest) beneficiaries off their rolls — as some companies are now doing — Blue Shield is actually getting ahead of the regulations by moving toward the goals of reform, not away from them. And that’s a good example for the health care industry as a whole.