First it was Aetna. Now Blue Shield of California is doing the right thing. Who will be next? Health Insurers are beginning to slice premiums and rebate money to customers.
Last year, many of health care reform’s critics (on the left as well as on the right), argued that the Obama administration had made a “deal” with the private insurance industry, giving it carte blanche to continue driving health care costs skyward.
I disagreed. Certain tough provisions in the Affordable Care Act (ACA) suggested that the insurance industry was not dictating the terms. In particular, the requirement stipulating that insurers pay out 85 percent of the premiums they receive in reimbursements to doctors, hospitals and customers signaled that insurers were not holding the pen while legislators pretended to write the bill. Under the ACA, if insurers do not meet this standard, they will have to rebate hundreds of millions to their customers. Now, this is beginning to happen.
(Insurers must pay out only 80 percent of premiums when offering insurance to small groups because in these cases, insurers' administrative costs, as a percentage of revenues, are so much higher. But this, too, will crimp net income.)
Climate Change: Blue Shield of California
Just 15 months after health reform legislation was signed into law, we’re beginning to see how the Affordable Care Act is reining in some of the nation’s largest insurers.
Today, ModernHealthcare.com reported that “Blue Shield of California, San Francisco, has pledged to cap net income at 2% of revenue.” This commitment will apply retroactively to income earned in 2010, when Blue Shield's net income exceeded the 2 percent target by $180 million. The company is now voluntarily refunding that amount to customers and the community. Close to $167 million will go to individual and fully insured group members. Another $10 million will be invested in hospitals and physician groups seeking to form Accountable Care Organizations, and $3 million will go to the Blue Shield of California Foundation, which supports organizations that provide health care to low-income Californians. The biggest winners will be customers who pay the most: those in small groups (2-50 employees). Rebates will average $125 for one employee and approximately $340 for a family of four.
At a news conference, Bruce Bodaken, the chairman and CEO of the non-profit Blue Shield indicated that he sees the move as a way to make health insurance more affordable: “We know now that expanding access to coverage is not enough.” he confessed. “Blue Cross executives said they hope the move inspires other insurers and providers to consider a similar move,” reported ModernHealthcare.com “’ Everyone is going to need to do the kind of soul-searching we've done,’” Bodaken added.
Did “soul-searching” lead to this decision? Perhaps. But I would suggest that Blue Shield is responding, in an enlightened and pragmatic way, to a climate change within the health care industry.
Government regulators are beginning to take a hard look at insurance premiums. Blue Shield California “had recently come under fire by state regulators for rate hikes,” ModernHealthcare.com explains. “In March, the company abandoned plans to raise rates on individual policyholders for the rest of the year, under pressure from the California Department of Insurance."
Blue Shield is trying to inoculate itself against further criticism (and regulation) by getting ahead of the regulators. $180 million is hardly a huge sum. But pledging to put a 2 percent cap on net income is a serious step forward. This should help curb premium inflation–assuming that the company doesn’t fudge the way it calculates “net income.” Though now that Blue Shield has made a public commitment, I would guess that state regulators will keep an eye on that number. If they don’t, California’s many consumer advocates will remind them.
Aetna Slashes Premiums in Connecticut
Last month, nearly 10,000 Aetna customers in Connecticut were, no doubt, dumbstruck to learn that their health premiums would plummet by as much as 19 percent in September.
“The lower premiums will affect 9,745 policyholders. Premiums will fall 5% to 19.5%,” observed American Medical News. The average premium will fall by 10%.
Why would Aetna voluntarily clip its revenues? ”The company expects to pay customers rebates for 2011 –meaning it expects not to meet the medical spending minimums set under the Patient Protection and Affordable Care Act,” according to the department's executive summary of Aetna's application.
In other words, in 2011 Aetna won’t be meeting the requirement that insurers pay out 85 percent of premium revenues to large groups, and 80 percent to small groups. Going forward, Aetna would rather not send out refunds. Instead, it is lowering premiums.
The Affordable Care Act is changing the landscape. In the past, some states had the authority to challenge health insurance rate increases, yet they hardly ever used that power. Now, however, more states are beginning to stand up to premiums hikes. And some are succeeding. Rhode Island, for instance, recently ruled that Blue Cross Blue Shield could lift premiums for members who buy their own insurance by no more than 1.9 percent–not the 7.9 percent the company requested.
These are still early innings in the battle for health care reform. No one yet knows if Aetna’s retreat signals a trend. It won't be clear until early 2012, after a full year of medical spending, whether customers will receive rebates, and from which insurers. But there is no question: insurers are beginning to feel the pressure built into the new law.