Blue Shield of California Faces Increased Pressure To Lower Rates
Some experts say Blue Shield of California should use its billions of dollars in financial reserves to lower its premium rates, which could improve competition across the state's insurance market, the Los Angeles Times reports (Terhune, Los Angeles Times, 3/27).
Earlier this month, the California Franchise Tax Board revoked the not-for-profit insurer's tax-exempt status and ordered Blue Shield to file tax returns for each year back to 2013.
The status revocation came as the company faced criticism over its:
- Executive pay;
- Rate hikes; and
- $4.2 billion surplus.
Blue Shield's surplus at the end of 2014 was four times as much as what the Blue Cross and Blue Shield Association requires insurers to stockpile to cover future claims.
Blue Shield said it would protest the tax board's decision (California Healthline, 3/18). However, the company already has paid the state $62 million in back taxes for 2013 and 2014, according to the Times.
Pressure Mounts To Reduce Rates
According to the Times, the tax ruling sparked debate over whether Blue Shield was fulfilling its mission of providing Californians with "access to high-quality health care at an affordable price."
Further, a rate review and interviews with industry officials found that Blue Shield's premiums are equal to or slightly higher than those of for-profit companies.
Some say the insurer should draw from its $4.2 billion surplus to reduce its costs for employers and consumers after years of implementing rate hikes. For example, Blue Shield raised its premiums by an average of 6% this year for plans sold through Covered California, according to the Times.
Glenn Melnick, a health care economist and professor at the University of Southern California, said, "Blue Shield could adjust their premiums lower than for-profit companies," adding, "That could stimulate more price competition across the market."
Meanwhile, Bruce Jugan, a Montebello-based insurance agent, said that if Blue Shield reduced its rates using the reserve funding it "would have a major impact on the market, and you'd start to see downward pressure on prices, which is what everybody wants."
Blue Shield Defends Rates, Surplus
According to the Times, Blue Shield said that its rates reflect the growing costs of medical care.
Blue Shield spokesperson Steve Shivinsky said, "Our prices are a direct result of the cost of health care," adding, "Hospitals and pharmaceutical companies don't charge us differently because we are a nonprofit."
Shivinsky noted that using financial reserves to lower rates could mislead providers into thinking that they do not need to control their spending.
He said, "It's unreasonable to think we would tap the company's savings account to artificially lower our rates."
In addition, the insurer noted that a large sum of its surplus has been reserved for its acquisition of Care1st Health Plan, a Medicaid managed-care plan (Los Angeles Times, 3/27). Earlier this month, Blue Shield officials said the insurer plans to move forward with the $1.2 billion acquisition, which is expected to close in June at the earliest (California Healthline, 3/23).
The insurer said its financial reserves would fall to a more appropriate amount after completing the acquisition, allowing it to maintain its strong credit ratings (Los Angeles Times, 3/27).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.