California’s Blue Shield To Cap Net Income and Pay Rebates on Excess Cash

(Corrects proposed rate increase and notes withdrawal in sixth paragraph.)

Nonprofit insurer Blue Shield of California, criticized in January for premium increases, said it will cap net income to 2 percent of revenue and refund any excess to policyholders.

The San Francisco-based company said it will be returning $167 million this year to policyholders as part of the new program, announced today in an opinion piece in the San Francisco Chronicle today. The nonprofit also will give $10 million to doctors and hospitals that invest in new ways to better coordinate patient care.

The program represents an effort to help customers deal with the rising cost of health care, said Bruce Bodaken, the chief executive officer of the nonprofit insurer. Blue Shield will keep to the 2 percent pledge as long as the company remains solvent and can invest “sufficient funds” to stay competitive, he said.

“We don’t have absolute power to control rising health- care costs, but there are some things we can do to help people pay for it,” Bodaken wrote in the newspaper. “This is a long- term commitment and, we believe, the first of its kind in the country.”

California Insurance Commissioner Dave Jones in January criticized Blue Shield for a requested premium increase for some individual policyholders and asked the insurer to delay the new rates while he reviewed them. Jones had no authority to block the request that was to take effect in March.

Proposal Withdrawn

The company said it lost $24 million last year on that sector of the business and expected to lose money in 2011 even with the proposed increase. Blue Shield later withdrew the request for the rate increase, which would have averaged 6.5 percent and been as much as 19 percent for some customers, said Tom Epstein, Blue Shield’s vice president, public affairs.

“One data point doesn’t make a trend,” said Les Funtleyder, an analyst at Miller Tabak & Co. in New York. “If the rebate program helps grow the customer base, then maybe other insurers would take a look. But this looks more like a special circumstance where a nonprofit wants to stay on the good side of regulators.”

Blue Shield has 3.3 million members, including 340,000 individual and family plan policyholders.

To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

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