Profit in Blue Shield's proposed 2016 rates is highest among major CA health plans

Blue Shield of California is proposing rates for Obamacare coverage next year that include the biggest provision for profit and administrative expense of any major California health plan, despite its nonprofit status and $4 billion reserve fund.

Profit and Expense in 2016 rates

Chart shows profits and administrative expenses built into 2016 rates for individual coverage. Amounts reflect dollars per member, per month. Data is from URRTs filed with the DMHC.

Blue Shield’s proposed 4.6% rate increase for coverage sold directly to individuals is currently under review by the Department of Managed Health Care, or DMHC. While California regulators don’t have authority to block excessive rate increases, they can rule them “unreasonable.” In the past, that has often prompted insurers to reduce them. 

Here are three reasons why the DMHC should declare Blue Shield's increase unreasonable:

1) Excessive profits

The rates Blue Shield proposes to charge would yield it bigger profits than the rates of either of its two biggest for-profit competitors, Anthem Blue Cross and Health Net. Blue Shield's profit on each Obamacare policy would be more than six times that of Kaiser Permanente, California’s other big nonprofit health plan. 

On average, Blue Shield’s provision for profits would cost policyholders $100 per family member enrolled in 2016.

Blue Shield plans to impose this charge even though it is sitting on a massive $4 billion reserve fund (built up with past years’ profits) that is more than 14 times what regulators require it to hold for contingencies.

Its plan to reap industry-leading profits next year also comes on the heels of rates charged last year that were so high they produced $93 million in excess profits—funds that Blue Shield had to relinquish under Obamacare rules requiring insurers with excess profits to pay into a fund that is used to compensate insurers with big losses.

2) Exorbitant expenses

Blue Shield’s proposed rates also include the biggest provision for expenses of any of California’s major insurers. Its projected expenses are more than 70% higher than Kaiser Permanente’s. Either Blue Shield is hiding profits in its expense provision or being careless with its customers’ money. The recent revelation by the LA Times that Blue Shield hiked executive compensation by 64% in one year is a clear sign that Blue Shield’s outsized expense margin is unwarranted.

3) Unreported executive compensation

Whenever insurers plan to increase rates, they are required by California law to report to regulators and the public the total compensation of each of their 10 highest-paid executives. Blue Shield ignored the requirement in connection with its currently proposed rate increase, as it has done more often than not in the past.

On the occasions when it has reported executive pay data, the information has been incomplete and misleading. A prime example is the $24 million in executive compensation that Blue Shield admitted to the Times that it excluded from data it reported to regulators in 2013.

Given Blue Shield’s nonprofit status, its massive reserve fund, and excess profits last year, expecting policyholders in 2016 to pay even one cent for profits is unreasonable. In fact, Blue Shield should dip into its past profits to offset its above-average expenses instead of forcing consumers to pay for its profligacy. Unless Blue Shield adjusts its rates to accomplish that and provides full information on executive compensation, the DMHC should brand its rate increase unreasonable.

If you agree, post a comment on Blue Shield’s rate increase to the DMHC website. It's easy to do. Go here and click on the public comment tab. While you're required to submit your email address for verification purposes, it will not be posted.

Few people post comments, so if a good number of us do, it will make an impression on the regulators. All it takes is a sentence or two. Just let the DMHC know you think a rate increase that would give Blue Shield the highest profits of any major California insurer is unreasonable.