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Blue Shield of California Pledges to Limit Net Income to 2 Percent of Revenue

Company Will Give Back $180 Million This Year

Name: Johnny Wong

Title: Corporate Communications

Phone: 415-229-6321

Email: johnny.wong@blueshieldca.com

SAN FRANCISCO, CA --- In a bold move to address the healthcare affordability crisis, Blue Shield of California Chairman & CEO Bruce Bodaken announced a pledge today that Blue Shield will limit its annual net income to no more than 2 percent of revenue. This commitment will apply retroactively to income earned in 2010, when Blue Shield's net income exceeded the 2 percent target by $180 million. That amount will go back to Blue Shield's customers and the community.

In announcing the pledge in a speech at the Commonwealth Club in San Francisco, Mr. Bodaken explains the new commitment.

"The action we're taking today is rooted in our longstanding commitment to universal coverage. We know now that expanding access to coverage is not enough. Even with the passage of federal health reform, coverage will be denied to far too many. Only if we solve the seemingly intractable problem of rising healthcare costs will the dream of universal coverage truly be achieved...

"Our pledge today tangibly demonstrates that Blue Shield puts affordability before profit. From now on we will set our rates to generate no more than 2 cents in profit for every dollar in revenue. If at the end of any year we wind up with net income above that amount because of lower-than-expected medical or administrative costs or higher-than-expected investment income, we'll return that amount to our customers and the community...

"This commitment doesn't solve the affordability problem, but it does represent a paradigm shift for a health plan. We are setting an example that may challenge others to consider changes they can make to reduce the cost of coverage, as well."

Blue Shield is committed to the 2 percent pledge as long as the company's board of directors determines that Blue Shield remains financially solvent, with sufficient funds to make the investments needed to stay competitive.

How the $180 million will be distributed

  • PREMIUM CREDITS - Blue Shield's individual and fully insured group customers will each get a 30 percent credit against one month of premium. Customers with whom Blue Shield shares risk will each get a 10 percent credit against one month of premium. In total, the company will credit $167 million back to its individual and business customers.
  • INVESTMENTS IN ACCOUNTABLE CARE - Blue Shield will also provide $10 million in funding to California hospitals and physician groups to help them participate more effectively in accountable care organizations.
  • AID TO LOCAL NONPROFITS - The company will give the remainder, about $3 million, to the Blue Shield of California Foundation, which provides grants to local nonprofit organizations that provide health care to low-income Californians.

How this transaltes into actual dollars for policyholders

Customers with fully insured coverage in May 2011 (other than government programs whose contracts do not permit such credits) will receive a credit in the bill for their October 2011 premiums. The average credit will vary depending on the monthly premiums:

  • The average individual customer will be credited approximately $80 and an average family of four will be credited approximately $250. The range is roughly $25 - $160 for individuals and $130 - $415 for a family of four.
  • For all group customers, the average credit to the group will be $110 - $130 per employee. Employers who pay part of the premium must decide whether and how to apportion it.
  • For small groups (2-50 employees), the averages are $125 for one employee and approximately $340 for a family of four.

"Our top priority is affordable health care for all. Our plan is to limit our margins, provide credits to our customers, invest in the community and continue to look for ways to help individuals keep and afford their health care," added Bodaken. "We realize the credit announced today will only make a modest difference, but we hope that our commitment may inspire other participants in the healthcare system to identify creative ways to deliver more value for each healthcare dollar."

Blue Shield has long advocated for health reform to expand coverage, reduce costs and improve quality. The company has developed innovative programs to reduce the rising cost of medical care through accountable care organizations, wellness innovations, and care management for serious medical conditions.


Background on Blue Shield of California

Blue Shield of California, an independent member of the Blue Cross Blue Shield Association, is a not-for-profit health plan with 3.3 million members, 4,800 employees, and one of the largest provider networks in California. Founded in 1939 and headquartered in San Francisco, Blue Shield of California offers a wide range of commercial and government products throughout the state. The company has contributed more than $125 million over the past four years to the Blue Shield of California Foundation --which was named one of BusinessWeek's top 20 most generous corporate foundations. Contact your local agent or broker for more information about Blue Shield products and services, or visit the Blue Shield web site at www.blueshieldca.com.