Once again, Blue Shield of California will be paying back some money to its customers. This is the result of the insurers compliance with a rule that requires them give credits to their customers whenever the insurer’s income exceeds 2% of revenue. This is good news for consumers.
Earlier this year, in June of 2011, Blue Shield of California paid back around $167 million to its customers. This time, the insurer will be returning $283 million to customers who have health insurance policies with Blue Shield of California.
The reason for the refund goes back to a pledge that Blue Shield of California made earlier this year. The insurer made a rule for itself that it would cap its earnings to 2% of its revenue.
It also goes along with a regulation that was created as part of the Affordable Care Act. That law requires insurers to spend at least 80% of consumer premiums on medical care (and not on things like administrative costs, or profit). Those that fail to do so are required to give rebates to their customers.
Part of this move by Blue Shield of California could be a way for the insurer to improve its reputation. Let’s not forget that this is the insurance company who created a huge controversy when it wanted to raise its rates by 59% last year. This rate hike was called “unreasonable” by the Insurance Commissioner of California.
Blue Shield of California is also the insurer who paid its CEO, Bruce Bodaken, $4.6 million in salary last year. These two situations, when put together, made people question what this nonprofit insurer was doing with the money that came from health insurance premiums. The people who get the rebates will probably look upon this insurer more favorably than they have done in the past.
The rebates will come in the form of a credit to each customer’s health insurance policy. The insurer won’t be sending out checks that people can take to their banks. In other words, the money that Blue Shield of California is returning to its customers is something that can only be spent on health insurance premiums. It cannot be used to pay for a person’s electric bill, or groceries, or anything else.
Why has Blue Shield of California exceeded its self-imposed limit of 2% earnings for the second time this year? The insurer says that the reason has to do with the economy. People have been cutting back on the amount of medical care that they receive.
Those that are struggling to make ends meet are going to have to make some hard choices about what to spend money on. Often, this means that people are putting off having certain types of treatment or surgery. The result is that health insurance companies end up spending less on medical care than they expected to.
Image by sushi♥ina on Flickr