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Blue Cross opens door to insurance rebates in Illinois

Chicago Business reports:

“The parent of Blue Cross & Blue Shield of Illinois is opening the door to rebates, which could provide badly needed relief to customers and trim the insurance giant’s massive cash hoard.

Chicago-based Health Care Service Corp. has sent notices to thousands of its individual customers amending their policy terms to allow for refunds, a move that could be required under the federal overhaul of health care. A similar notice for some group plans is awaiting approval from Illinois regulators, a company spokesman says.

How many people would be eligible for rebates is uncertain, but Blue Cross had nearly 307,000 individual policy-holders in Illinois in 2010. The company’s small-group segment is more than twice that size, based on premiums of $1.7 billion that year.

Rebates by Blue Cross would give a big boost to self-employed entrepreneurs and small-business owners, many of whom have struggled with a weak economy and skyrocketing health care costs. Rebates also could intensify competition in the local insurance market, which Blue Cross dominates.

The Health Care Service spokesman downplays the notices, saying they are routine communications that don’t mean rebates are coming. But legal experts say the notices may reveal the company’s next move.

“The fact that they sent out that rider means they do think they are going to owe money,” says attorney Emily Wey, a partner in the Denver office of law firm Polsinelli & Shughart P.C. who specializes in health insurance.

The notices come as Health Care Service is poised to report $1 billion in profit from insurance premiums in 2011, the second straight year the company would cross that milestone. The fourth-largest health insurer in the nation, it has operations in four states and cash and investments totaling $9.3 billion.

AFFORDABLE CARE ACT

Forcing insurance companies to spend more on health care—and less on overhead—is a key goal of the Obama administration’s Patient Protection and Affordable Care Act.

Since last year, the law has required companies to spend a minimum amount of premiums on medical benefits or activities that promote public health. For individual and small group plans, that minimum is 80%.

With its hefty profits, compared to other insurers, Health Care Service is a candidate to run afoul of the requirement.

Had the law been in effect in 2010, Health Care Service would have had to refund nearly $90 million, or an average of $220 per person, to individual customers in Texas, according to a Crain’s analysis of state insurance documents.

Any reduction would help Blue Cross customers like Performance Stamping Co., a Carpentersville manufacturer of parts for appliances and autos that provides health insurance to about 45 workers. Its annual revenue has fallen to $8 million to $9 million from a pre-recession high of $14 million.

Blue Cross has kept its annual premium level at about $160,000 the last two years, after an 8% hike in 2009, says Eileen Williams, Performance Stamping’s director of human resources.

“It seems like they’re making some money somewhere,” she says. “If they can give us some of that profit back, so be it.”

Blue Cross’ parent doesn’t know if it will have to issue rebates in part because of uncertainty over how new federal regulations governing medical spending by insurers will be applied. The notices were sent “so that we don’t run afoul of any provisions that may be implemented at a later date,” the spokesman says.

Insurers must file reports with regulators by June 1, with any rebates due by Aug. 1.

Blue Cross has said small-group rates in Illinois will decrease by 3.5% to 6.5% for 2012 renewals, while large groups will see an increase of 6%. Individual members will see an 8.9% jump (Crain’s, Nov. 7).

The company “makes its pricing decisions based in part on the cost of medical care of its covered population,” the spokesman says.

Blue Cross has 48.1% of the Illinois market for health, life, property and casualty insurance, more than five times the share of the state’s No. 2 insurer, UnitedHealth Group Inc., according to 2010 data.

Minnetonka, Minn.-based UnitedHealth representatives say they won’t know until the spring whether rebates must be issued. Another big insurer, Health Alliance Medical Plan Inc., owned by the Urbana-based Carle Foundation, won’t have to issue rebates, an executive says. Other top insurers decline to comment or did not respond to requests for comment.

Rebates by Blue Cross likely would ripple through the market.

“As the carrier with the largest marketshare, they certainly do influence other carriers’ decisions,” says Nancy Daas, a partner in Chicago-based benefits consultant CMC Advisory Group.”

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