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Blue Shield of California Announces Hospital Network Choice Program

SAN FRANCISCO, (January 30, 2002) - In an effort to keep premiums lower, preserve a broad provider network, and empower consumers to make choices that can limit their own healthcare costs, Blue Shield of California announced today that it will implement a new network choice program for its contracted hospitals. Network choice means that hospitals are categorized as "Choice" or "Affiliated," depending on their costs. Blue Shield members who use the higher-cost "Affiliated" hospitals will pay a slightly higher copayment or coinsurance amount. Emergency services are exempt from this program and not subject to higher copayments. The network choice program takes effect April 1, 2002 for Blue Shield's commercial plans for small and mid-sized groups and individual plans.

These changes are being made in response to the rapid increase in healthcare costs, particularly for hospital services. According to a January 2002 survey by William M. Mercer, Inc., the average health premium per employee will increase about 13 percent this year. The Center for Studying Health System Change in September 2001 revealed that 47 percent of last year's increase in the cost of healthcare was due to hospital charges.

"We've found that hospital costs fluctuate widely for the same services," said Ken Wood, chief operating officer of Blue Shield of California. "Our network choice program more closely connects our members to the real costs of care while providing them with the broadest possible choice of hospitals."

"Network choice, once fully implemented, will help moderate rate increases and enable more individuals, families and small businesses to afford health insurance coverage," added Wood.

In the network choice program, two categories of hospitals are identified:
- "Choice" hospitals are accessed at the member's same out-of-pocket copayment or coinsurance amounts as before.

- "Affiliated" hospitals are accessed with an additional copayment or coinsurance amount.

The typical copayment for HMO non-emergency services will be a few hundred dollars more per admission and for PPO members, coinsurance will rise by 10 percent. Overall, members who use "Affiliated" hospitals for non-emergency services will pay an additional three to five percent of their hospital costs.

In developing its network choice model, Blue Shield designed a comprehensive process to designate hospitals as "Choice" or "Affiliated". Several indices were used that measure costs by geography and type of service provided. Hospitals were divided into northern and southern California regions and then sub-divided by facility type. (e.g.: tertiary or acute care). Facilities whose costs were substantially more than the average of the combined indices were designated as "Affiliated" hospitals.

"A hospital's designation of "Choice" or "Affiliated" is based on costs and is not an indication of the quality of care offered by the facility," said Wood. "Blue Shield has an outstanding network of hospitals which provide quality medical services."

Background on Blue Shield of California

Less than 20 percent of hospitals in the Blue Shield network have been classified as "Affiliated" facilities. Designations will remain in effect through October 2002. After October 2002, Blue Shield will evaluate the facilities on a quarterly basis and a hospital's status may change from one category to the other.

Affected members will be notified about network choice in early February. In addition, information on network choice is included in a supplemental provider directory available to members from their employer, agent or broker and can also be found on the Provider Finder on Blue Shield's Web site. Members are also encouraged to contact Blue Shield's Customer Service department at (800) 200-3242 (PPO), 800-424-6521(HMO) or by calling the phone number on their identification card to find out if a particular hospital is considered "Choice" or "Affiliated."

Founded in 1939, Blue Shield of California is one of the state's leading healthcare companies. Headquartered in San Francisco, the nonprofit corporation has about 2.3 million members, 3,700 employees and more than 20 office locations throughout California. For more information on Blue Shield, visit the company's Web site at .