Blue Shield to return $283 million in excess profits to policyholders in California

Making recent headlines, Blue Shield of California has announced 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. As discussed in an article in the Los Angeles Times, this 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.

Blue Shield also noted that the money being returned this month comes from excess 2010 net income, while the money announced last week 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.

Blue Shield Chief Executive Bruce Bodaken stated, “People are really struggling to make ends meet. 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 this will affect approximately 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.

Opponents of the healthcare reform 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.

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