Blue Shield's $1.2 Billion Promise to Tell the Truth

If you believe state HMO regulators, they extracted some big concessions from Blue Shield this week in order to gain the Department of Managed Health Care’s approval to spend $1.2 billion it has stockpiled from customers after years of excessive rate increases. DMHC gave Blue Shield the go-ahead to buy Care 1st, a Medi-Cal health plan.

So what did DMHC get from Blue Shield that justifies giving up $1.2 billion in premium dollars? Here’s the line in their agreement that jumped out at me:

“Blue Shield agrees to refrain from making any statements to the Department that are, in the Department’s reasonable judgment, misleading or inconsistent in any material respect with any statements made by Blue Shield to any state or federal agency, including, without limitation, any statements regarding the distribution of Blue Shield’s assets upon dissolution.”

That’s right: Blue Shield promises not to lie to California regulators.

Most of us would assume that insurance companies are already required to tell regulators the truth. When they swear they’ll go bankrupt if they don’t raise rates, for instance. Or promise their networks have enough doctors so when people buy health insurance they can get an appointment to see the doctors they need. But the issue arose when Blue Shield executives were caught in a lie, giving state and federal regulators completely different answers when asked if they would return their extra billions to policyholders if they dissolved.

To approve the purchase, DMHC could have invoked charitable trust obligations for non-profit Blue Shield and required it to return to the public or policyholders some of the $4 billion in excess reserves (from which it drew the funds to pay for the deal) that it built up by overcharging its customers. It could have required Blue Shield to agree never to impose another rate hike found to be unreasonable by regulators. There have been many in the last few years. It could have limited executive pay at Blue Shield and the newly-acquired Care 1st. None of these pocketbook protections were imposed.

Blue Shield did agree to put aside $200 million for charity, but the obligation is over ten years, some of which will go through the Blue Shield Foundation and serve as little more than good publicity for the insurer.  Blue Shield also agreed to stop fighting to regain its tax-exempt status, revoked last year by the Franchise Tax Board for the insurer's decidedly for-profit actions. Much has been made of this, but another line in the agreement suggest that's an empty promise as well. As it notes: "Blue Shield agrees that, following its relinquishment of its state franchise tax exemption, it will inform the Department before seeking a new franchise tax exemption at any point in the future." Nothing in yesterday's agreement seems to prevent Blue Shield filing to regain its status as soon as it gives it up.

Not to worry though, because Blue Shield pledged to tell the truth. Let's just hope they didn't have their fingers crossed behind their back.

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