Obamascare? Blue Shield of Calif. Mulls Proposal to Boost Premiums as Much as 20 Percent

Consumer advocates are asking Blue Shield of California to not increase rates on its 300,000 customers by an average of 12 percent (effective in March) and to instead use its $3.9 billion reserves to help offset the expected costs of The Patient Protection and Affordable Care Act.

The company has proposed a maximum increase of 20 percent.

Consumer advocates argue that Blue Shield is sitting on plenty of cash and, therefore, it has no reason to increase rates.

"Blue Shield is sitting on a huge surplus that is beyond what is required or necessary," Laurie Sobel, a senior attorney for Consumers Union in San Francisco, told the Los Angeles Times. "It should be used to hold down rate increases when it hits these extraordinary levels."

As the L.A. Times notes, Blue Shield’s surplus is “nearly three times as much as the Blue Cross and Blue Shield Assn. requires its member insurers to hold to cover future claims.”

The California insurance commissioner and the state Department of Managed Health Care are currently reviewing Blue Shield’s proposed premium increases. However, as the Times also notes, neither agency can has the power to “reject change in rates.”

“Some other states limit how much surplus can be held by nonprofit health plans. Other regulators press nonprofit insurers to return more money to consumers and the community overall since their stated mission is to serve the public good,” the Times’ Chad Terhune explains.

“Washington's insurance commissioner has said the two big nonprofit Blue Cross and Blue Shield plans there hold enough surplus to allow a portion of it to be used to reduce rates,” he adds.

Meanwhile, Blue Shield explains that its reserves -- which have increased by a full 77 percent since 2006 from $2.2 billion to $3.9 billion – have nothing to do with the proposed rate increases, adding that that cash has been put aside for the benefit of its policyholders.

"Reserves are needed to ensure our members' claims can be paid no matter what," said Blue Shield spokeswoman Lindy Wagner. "We need them to protect against uncertainties like a pandemic or another crisis."

So what’s the deal? Why is BSoC even talking about rate increases? One word: “Obamacare.”

Yes, because The Patient Protection and Affordable Care Act will flood the market with new customers, Blue Shield expects an exponential rise in costs.

"It's a once-in-a-lifetime change in the healthcare market that will bring a lot of volatility, and we need higher reserves for that," Wagner said.

But even with the rate increases, Blue Shield expects to lose money in the individual insurance market next year.

“Blue Shield said its reserve has grown at a slower pace since its pledge last year to limit profits to 2% of annual revenue and return millions of dollars to customers. The company announced that move after a consumer backlash to a bid to raise rates as much as 59% in 2011 that was later dropped,” Terhune writes.

“Overall, the company said it has returned about $520 million to customers over the last three years because of the 2% limit on profits,” he adds.

State officials are expected to finish reviewing various rate filings in the coming weeks.

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