Blue Shield of California refunding $283 million of medical insurance premiums to policyholders « Health Insurance Advisory

Welcome to the New Healthcare Law Center and State News

new healthcare reform lawThe new healthcare law, called the Patient Protection and Affordable Care Act (PPACA), represents comprehensive healthcare reform legislation signed into law on March 23, 2010. It contains numerous provisions designed to protect consumers and promote low cost medical insurance, including many new taxes to pay for the cost.

In this section of the site, you can also obtain the following information specific to your state: available medical insurance options, efforts to regulate medical insurance premiums, healthcare, the individual medical insurance marketplace and the new healthcare law.

Our objective is to help Americans make sense of the new healthcare law by explaining key provisions in plain English and assisting individuals, families and the self-employed in using this information to find and secure affordable medical insurance.

Blue Shield of California refunding $283 million of medical insurance premiums to policyholders

Author: Pete S - Sr. Staff Writer | Oct 15 2011 | Anthem Blue Cross of California, Blue Shield of California, California

A key provision of the new healthcare law designed to promote affordable medical insurance is called the “minimum loss ratio” or MLR for short. It requires health insurance companies in the individual medical insurance marketplace to spend no less than 80% of every premium dollar collected from customers on claims. This includes expenses for medical services and supplies, such as hospitalization, surgery, office visits, x-ray, lab and prescription drugs. Along with claims, health insurance companies can also spend money on “quality improvement initiatives” that help improve the overall health and wellness of its members. Examples include, health risk assessments, biometric screening, health coaching and wellness programs.

Prior to the new healthcare law, it was not uncommon for many health insurance companies to spend less than 80% on claims, as administrative costs, agent commissions, preferred provider access fees, premium taxes, target profit, reserves and other overhead exceeded 20% of every premium dollar collected.

Like many nonprofit insurers, Blue Shield of California has come under sharp criticism for seeking large premium increases and maintaining overly generous reserves. The new healthcare law is aimed at trying to make sure insurers do not price premiums too much above the actual cost of paying for the care of their customers.

In a move to cap earnings at 2% of collected premiums, Blue Shield of California says it will give nearly 2 million customers a $283 million credit on their medical insurance premiums. The action, on top of a similar $167 million credit announced in June and returned this month (from 2010 excess profit), was driven partly by the weak economy. Like most other top health insurance companies, Blue Shield of California recorded better than expected profits this year. The San Francisco nonprofit insurer says it spent less than expected on claims because people have cut back on medical care.

This credit (from 2011 excess profit) will result in individual medical insurance policyholders seeing their December bills credited $135 on average, while a family of four will get an average credit of $420, translating to a premium reduction of 4.5%. The combined refund ($167 million credit announced in June + current credit of $283 million) represents a 7% reduction in annual premiums this year- nearly an entire month’s worth of insurance cost.

Opponents of the new healthcare law contend that next year, however, consumers can expect higher medical bills and more expensive medical insurance, as new benefit mandates and other rules kick-in. Several insurers, including California giant Anthem Blue Cross of California, acknowledged their customers are using fewer healthcare services than expected this year. But other health insurance companies say that since the price of individual medical insurance is function of the cost of healthcare, premium refunds may not be substantial this year and even non existent next year because the cost of medical care is growing so fast.

A Blue Cross of California spokesperson said “affordable medical insurance is so important to individuals and employers right now. This credit will really make a difference.” To find affordable medical insurance in California, visit

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