Blue Cross Sees Threat In Universal Health Plan

California Blue Cross, which writes about a quarter of California health insurance policies, claims it cannot provide affordable health insurance unless it can deny or cancel coverage to sick people who need it. Blue Cross also claims it could not survive with a 15% cap on overhead, since it takes from 21% to 49% of premium costs as profits and administrative fees. . For individual policies, Blue Cross makes 27% profit and charges 23% administrative costs, but if makes its highest profits on high-deductable polices, where the policyholder spends thousands of dollars in medical bills before insurance kicks in. These are the policies low-income people would have to buy under Schwarzenegger’s plan to force everyone to buy private insurance. Blue Cross spent nearly $2.5 million lobbying Sacramento in 2005-2006.

San Jose Mercury News, 04/15/20

Blue Cross sees threat in universal health plan

By Mike Zapler
MediaNews Sacramento Bureau

SACRAMENTO – When Blue Cross sells health insurance to someone who isn’t covered at work, the company typically makes a 27 percent profit. By the time salaries and other administrative costs are accounted for, only half the money the company collects in premiums from that person goes for medical care.

Those figures may help explain why Blue Cross – the insurance provider for roughly one in four people in the state who have health coverage, and with political heft in the Capitol to match – so far is the only major insurer opposing Gov. Arnold Schwarzenegger’s universal health care plan.

State records show that among the state’s top insurers, Blue Cross profits most from the current system – to the detriment, critics charge, of consumers. And so the company may have the most to lose if the governor succeeds in reforming the system.

Given those stakes, and the insurer’s formidable presence in Sacramento, Blue Cross could emerge as a potent force in the debate over the governor’s ambitious health care plan.

Blue Cross “is a very big influence in the market,” said E. Richard Brown, director of the UCLA Center for Health Policy Research, “and the governor’s proposals directly affect the marketplace.”

Schwarzenegger’s plan could sharply curtail Blue Cross’ industry-leading margins in a few key ways. Among the state’s largest insurers, it would have by far the hardest time complying with a requirement that 85 percent of premium dollars go toward medical care. Blue Cross devotes significantly less than that – from 51 percent to 79 percent, depending on the type of insurance plan – according to financial data filed with state regulators.

Resistant to reform

The governor also wants to ban the practice of “cherry picking” young, healthy people least likely to go to the doctor, while denying coverage to others with even minor ailments.

That policy is legal – and not unique to Blue Cross – but the company’s success at limiting exposure to big medical bills has helped it rack up fatter profits than the state’s other top insurers.

“The idea that you have to sell health insurance to any comer is antithetical to their business model,” said Peter Harbage, a health care expert at the non-partisan New America Foundation who has advised the governor. “It’s not how they make money.”

Blue Cross recently was fined $1 million by the state for dropping members who became sick or pregnant, the second such penalty in less than a year. The company says the cancellations were justified, but some say the fine is just one example of a company driven excessively by money.

Blue Cross “is known as the most aggressive in trying to avoid covering people who actually need care, and the most aggressive in offering scaled-back, bare-bones plans,” said Anthony Wright, executive director of Health Access, a consumer advocacy group. “In the policy arena, they’ve been the most resistant to reform.”

Blue Cross says it has thrived by meeting a demand for affordable insurance, and that it wants to prevent changes to the health care system it believes will backfire.

Big lobbying budget

“We’re the largest health care provider in the state and we think we do a good job,” said Nick Garcia, a director of public relations for Blue Cross, which has 8 million members. “What we’re doing is providing as much information as possible to the governor’s office and the Legislature.”

During the two-year legislative session ending in December, the company spent nearly $2.5 million to lobby lawmakers and regulators, records show – nearly $800,000 more than Kaiser Permanente, which ranked second among health insurers. The $1.4 million that Blue Cross spread around to lawmakers and political causes was also easily tops among insurers.

The company also donates generously to community organizations – $2.7 million last year – helping to foster good will in halls of power.

Blue Cross isn’t saying precisely how it plans to deal with the governor’s proposal, but there is little question it perceives a threat. While other insurers have been collaborating on ways to make it work in practice, Blue Cross has taken a different tack: Applaud the plan’s ambitions – and a few non-controversial planks – but criticize key details.

Schwarzenegger’s $12 billion proposal aims to cover the state’s 6.5 million uninsured residents and contain spiraling health care costs. The plan includes some contentious ideas – a fee on doctors and hospitals, and extending insurance to illegal immigrants, for example. But Blue Cross has zeroed in on the two less-publicized proposals.

The company wrote in a February letter to lawmakers that barring insurers from turning away people with medical conditions would cause premiums to “spiral out of control.” And within weeks of the governor announcing his plan, the chief executive of Blue Cross’ parent company, WellPoint Health Networks, criticized Schwarzenegger’s proposed cap on profits and administrative costs.

The executive, Larry Glasscock, said in a January conference call with investors that the idea would make it harder for the company to offer low-cost, low-benefit plans popular among younger people seeking insurance in case of an emergency. Those plans, which typically require a large deductible before anything beyond basic coverage kicks in, are Blue Cross’ most profitable.

In contrast, four Blue Cross competitors – Blue Shield of California, HealthNet, Kaiser Permanente, and United Healthcare – recently drafted a plan to avoid problems other states experienced when they barred insurers from rejecting people with pre-existing conditions.

Double others’ profits

How much money Blue Cross makes in California can be difficult to discern, but financial reports that the company files with the state give strong indications about its profitability. In 2005, it sent more than $500 million in profits to parent company WellPoint – the nation’s largest health insurer – from its California HMO business alone, which has about 4.5 million members. It reported profits of 10 percent – more than double the HMO profits of HealthNet and Pacificare, Blue Cross’ largest for-profit competitors.

Blue Cross’ margins on so-called preferred provider plans (or PPOs) – which are subject to less state oversight – are much larger. Documents from a Department of Insurance hearing last year pegged profits for such plans at an average 18 percent, compared with 5 percent for competitor HealthNet. For plans sold to individuals, Blue Cross’ profits averaged 27 percent, compared with 15 percent for HealthNet.

Limiting profits and administrative costs to 15 percent, with the rest for medical care, “is going to force all plans to think about how they’re spending premium dollars,” said Ruth Liu, an adviser to Schwarzenegger and undersecretary at the Department of Health and Human Services. “We think it’s a legitimate request because we’re sending a lot of business their way” in the form of millions of newly insured people. “We’re not singling out any particular health plan.”

Schwarzenegger, who recently met with the current and incoming chief executives of WellPoint clearly hopes to avoid a fight with the insurance giant. Blue Cross, for its part, is waiting to see what develops in the Legislature, where the debate has yet to heat up.

Contact Mike Zapler at (916) 441-4603 or


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