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Under criticism for raising health-insurance premiums, Blue Shield of California has made an unusual public pledge to limit its profits to 2 percent of revenue, and to use any income above 2 percent for the benefit of its policy holders and the public in general. A spokesman for Arkansas's comparable health insurer, Arkansas Blue Cross and Blue Shield, said she knew of nothing similar planned in this state, noting that all the state Blue Cross and Blue Shield affiliates are separate companies, operating independently of each other.
Some of the criticism in California came because the CEO of California Blue Shield was making $4.6 million a year while the company was raising health insurance premiums. The CEO of Arkansas Blue Cross and Blue Shield makes only $750,000 a year, while the company has been raising premiums. Last year, Arkansas BCBS had revenues of $1,197,934,306, and net income of $63,342,814, a return of about 5.3 percent.
"Net income" is the figure that California Blue Shield called "profit" and has promised will not exceed 2 percent in the future. Technically, the Blue Cross and Blue Shield companies are "nonprofit," meaning that they're owned by policy holders rather than stock holders. But even "nonprofit" companies are sometimes accused of spending excessive amounts on administrative costs, including salaries, overhead and marketing.
Bruce Bodaken, chairman and CEO of Blue Shield of California, revealed his company's new policy in a column he wrote for the San Francisco Chronicle. "We are living in incredibly challenging economic times," Bodaken wrote. "At Blue Shield of California, we believe we have an obligation to tighten our budget, just like everyone else. ... First we will limit profits for our company. Specifically, we will cap our net income at 2 percent of revenue. 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." He said that his company was 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."
"[W]e will apply this new policy beginning with our income in 2010, the year health reform was enacted," Bodaken wrote. "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 [for people who need help to pay for health care].
"[W]e will put first our customers who need help the most," Bodaken said. "Last year, we unfortunately had to raise premiums to keep up with the rising cost of hospitals, physicians and prescription drugs, particularly for our individual and family plan members. Those customers, who pay 100 percent of their premiums without help from an employer, will receive a 30 percent credit on one month's bill – an average of about $80 for an individual and $250 for a family of four."
Arkansas Insurance Commissioner Jay Bradford said of the California Blue Shield plan, "I think it's a great gesture." He noted that under the new federal health-care legislation, all health insurers will eventually be held to a certain percentage of profit. The state Insurance Department will set that percentage in Arkansas, if the legislature gives the Department the authority, which the legislature has not yet done. If the state agency isn't authorized to set the percentage, the federal government will do it under the new federal law. (But the law is being challenged in Congress and in court, so all that could change.)
Filings with the Arkansas Insurance Department show that Mark White was paid $717,971 as president and CEO of ABCBS in 2010 ($500,095 in salary, a $134,853 bonus, and $83,022 in undefined "other compensation"). White also was paid $36,308 to serve on the ABCBS Board of Directors, a group that includes educators, lawyers, physicians and business executives.
The state Insurance Department has regulatory authority over Blue Cross rates for individual insurance, but not for group insurance. Group rates are set by the market. Before Bradford was appointed insurance commissioner in January 2009, ABCBS rate requests for individual coverage were routinely approved as submitted, often without hearings. Under Bradford, hearings are sometimes held, and ABCBS has sometimes gotten less than it asked for. In 2009, for example, ABCBS asked for a 27.3 percent increase in a certain line of insurance, and Bradford approved an 11 percent increase.
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