Blue Shield of California must rebate $24.7 million in excess profits and administrative expenses to its small business customers this fall, according to a recent regulatory filing. The nonprofit health plan is the only major California insurer whose operations require it to return money this year under a provision of the Affordable Care Act limiting the percentage of premiums that can go to profits and administration.
Under the health reform law’s “medical loss ratio” provision, insurers must pay rebates if medical spending accounts for less than 80% of premiums collected. Blue Shield spent just 77.7% of small business customers’ premiums on medical care, with the rest going to profits and administration. As a result, 380,000 small businesses that were customers of Blue Shield in 2015 will get back 2.3% of the premiums they paid.
None of the major California health plans, including Blue Shield, owe rebates this year to their individual or large employer customers because all of the insurers devoted more than the required minimum portion of premiums to medical care for these groups.
Blue Shield has stood out in past years, as well, for excessive profits and administrative expenses. In the five years since the rebate requirement was instituted, Blue Shield has had to return a total of $160 million compared to $56 million for Anthem Blue Cross and $4 million for Kaiser Permanente, both of which have significantly more customers than Blue Shield. (I tallied the totals from amounts reported by federal regulators in the annual listings of insurers owing rebates and from the MLR reports for 2015 filed with California regulators.)
Blue Shield’s latest rebate tab comes on the heels of a class action lawsuit accusing the company of shortchanging its customers by $34 million on rebates paid last year. Filed in Los Angeles Superior Court in July, the lawsuit alleges that Blue Shield improperly counted erroneous claims payments as medical spending rather than administrative waste, thereby reducing the rebates it calculated it had to pay.