Caldwell: Health insurers should take hint from Blue Shield

If you want to thank anyone for enactment of President Obama’s health care reforms, those anyones would be Blue Shield of California and Anthem Blue Cross.

That state’s two biggest health insurance providers announced huge premium increases — 39 percent for Anthem — as debate on the reforms reached its final, fevered pitch last spring. Apparently, they took California’s nickname “Golden State” literally.

The backlash was overwhelming. If rate increases of that magnitude were the future of health insurance as the nation has known it for decades, how could a public plan be any worse? The reforms passed.

(Pause here for individual reader invective about “Obamacare.”)

Neither of the two mega-rate increases happened, although there have been incremental hikes.

Tuesday, in an about-face, Blue Shield Chief Executive Officer Bruce Bodakin announced the company will cap its net income at 2 percent of revenue. And the cap will be retroactive back through 2010, which will translate into $167 million in rate relief, $10 million in payments to innovative medical providers, and $3 million to the company’s charitable foundation.

Customers who pay 100 percent of their premiums will get a 30 percent credit on their October bills, about $80 for a family of four.

Bodakin’s motives were hardly altruistic.

First, there was some face-saving in order. The federal reforms require the disclosure of executive salaries. Bodakin, the head of a non-profit company with more than three million policyholders, was paid $4.6 million in 2010. That was more than the head of for-profit Anthem.

Second, the California State Senate is debating a bill that would give the insurance commissioner there the authority to reject excessive rate increases. The bill has already passed the Assembly. A voluntary ceiling on net income might derail Senate passage.

Bodakin and Blue Shield also have the luxury of extremely deep reserves: $3.5 billion.

But Bodakin got the praise he was after, including an appreciative statement from U.S. Health and Human Services Secretary Kathleen Sebelius, who last year attacked Blue Shield’s rate hike proposal.

It would be nice if Washington health insurers followed the Blue Shield example.

Premera’s net income in the first quarter of this year was 7.4 percent, Regence Blue Shield’s was 6.4 percent, and Group Health Cooperative’s was 6 percent. That was an atypical result for Group Health, which since 2006 has reported margins below 2.8 percent.

And the three companies together hold $2.5 billion in reserves for a collective member base of 1.5 million.

The Washington Legislature this year again rebuffed an effort by Insurance Commissioner Mike Kreidler to take those surpluses into consideration when reviewing company rate filings for the individual and small group market. Without that authority, he in October approved rate increases of 8.9 percent for Premera and 16.4 percent for Regence. Asuris, active in the Spokane market, was granted a 23.7 percent hike.

Group Health will implement a bare 0.6 percent increase July 1, but premiums for its Options program will jump 18 percent.

As long as medical claim payouts exceed 76 percent of premiums, under Washington law they are entitled to the increases. Most pay out more than that, a few substantially more.

The federal reform bill raises the bar to 80 percent. The law will also require companies to justify any increases more than 10 percent.

Washington consumers at least will get a much better picture of where there medical insurance dollar goes when the commissioner implements a new state transparency law.

Starting in July, they will be able to see a one-page summary of how their insurer spends the money. Later this year, a database will provide a much deeper picture. And residents will be able to subscribe to a service that will send them email alerts when new rates are filed, and what action was taken.

As complicated as insurance can be, particularly health insurance, these new tools should be helpful for consumers. But Bodakin’s 2 percent solution would be a real lifeline.