Blue Shield of California says it will give customers in the state a $283-million credit on their insurance premiums, saying it is fulfilling a promise to return money to policyholders when its net income exceeds 2% of revenue.
The action, on top of a similar $167-million credit announced in June and returned this month, was driven partly by the weak economy. The San Francisco nonprofit insurer says it has spent less than expected on claims because people have cut back on medical care.
"People are really struggling to make ends meet," Blue Shield Chief Executive Bruce Bodaken said in an interview Thursday. "As people have less discretionary spending, they're deciding that maybe they will put off that hip or knee replacement until they can afford it."
Individual policyholders will see their December bills credited $135 on average, while a family of four will get a $420 average credit, reducing their annual insurance costs by 4.5%.
Although Thursday's action affects only nearly 2 million of Blue Shield's policyholders in California, other consumers could be getting similar paybacks under President Obama's healthcare overhaul approved last year.
Under the regulations, insurers must spend at least 80% of consumer premiums on medical care and not reserve that income for administrative costs or profit.
That could mean rebates in the billions of dollars — which some say could hamper efforts by some congressional Republicans to repeal the measure.
Already, people are getting free vaccinations, cancer screenings, mammograms and colonoscopies. Adult children can remain on their parents' insurance plans until age 26. And policyholders no longer have to contend with limits on the dollar value of their insurance policies.
"When people come to expect benefits and services, the law will be much harder to cut back," said Cathy Schoen, senior vice president of the nonprofit Commonwealth Fund, which focuses on improving the U.S. healthcare system.
Opponents of the healthcare reform, however, contend that consumers can expect higher medical bills, more costly insurance and overly regulated medical care in coming years.
Several insurers, including California giant Anthem Blue Cross, acknowledged that their customers are using fewer services than expected this year. But the companies said that rebates may not be substantial — or even necessary — next year because the cost of medical care is growing so fast.
"Medical inflation is a primary driver of healthcare costs," said Anthem spokeswoman Kristin Binns. "It has a significant impact on how much of each dollar goes for medical services."
Blue Shield said that money being returned this month comes from excess 2010 net income, while the money announced Thursday is from extra 2011 earnings. Together, the refunds represent a 7% reduction in annual premiums this year, or nearly an entire month's worth of insurance cost.
"If an insurer has to give a rebate, it certainly seems like a good public relations move to do it proactively than to be forced to do it," said Larry Levitt, who heads the nonprofit Kaiser Family Foundation's Initiative on Health Reform and Private Insurance.
Blue Shield customers said they were grateful for any break in light of repeated rate increases over the last year, but some also questioned why they had to in effect overpay premiums in the first place.
"If there is money due our way and the company is making right with their accounting, I think that is to be applauded," said John Lewis, 47, a policyholder from Santa Barbara. "On the other hand, I wonder what is going on that they seem unable to accurately forecast what their costs are going to be."
The two credits, coming within a six-month span, are "tangible evidence that we're putting affordability before profit," Bodaken said. "We hope our action will inspire others in the healthcare industry to look for ways to make quality healthcare more affordable."
Blue Shield's credits came after the company was criticized by consumer groups this year for rate hikes and Bodaken's annual salary of $4.6 million.
California Insurance Commissioner Dave Jones called on other companies to follow Blue Shield's example.
"Unfortunately, other health insurers and HMOs show no indication that they intend to cap skyrocketing profits or rates," he said.
Employers also will get a break on their December bills under the Blue Shield plan. Firms with two to 50 workers will get an average credit of $220 per employee. Larger companies will receive an average of $195 per person. Companies that pay part of their workers' premiums will decide how much to share with them.
Blue Shield said it also is devoting $12 million for hospitals and physician groups to build stronger collaborations and for other healthcare-related reforms. That is on top of $13 million it announced in June for such efforts.
Bodaken said the return of $450 million would ease the burden on policyholders during a tough economic time.
"Affordability is so important to individuals and employers right now," he said. "This credit will really make a difference."