Plan's 2% profit pledge met with skepticism

July 1, 2011

Last month, Blue Shield of California chief executive Bruce Bodaken pledged to address the healthcare affordability crisis by limiting the plan's net income to 2% of revenue.

A former NBA basketball star and successful steel-industry businessman, Bing isn't exactly hurting for money. The gesture seems like clever political maneuvering, but I can't help but view it in the context of his charity work and his longtime minority-community support. I'm willing to give Bing the benefit of the doubt.

The same has not been said about Blue Shield of California (BSC) chief executive Bruce Bodaken, who last month pledged to address the healthcare affordability crisis by limiting the plan's net income to 2% of revenue. He also announced BSC would return $180 million of last year's income to customers, policyholders and the community.

First of all, many critics believe the announcement is a make-good for the recent controversy over the plan's proposed premium hikes. BSC in January proposed 30% average increases for individual plans, which it later backed away from under intense public pressure.

Critics have also been quick to point out that BSC is a not-for-profit organization, sitting on reserves in the neighborhood of $3 billion, or more than 1,000% of risk-based capital. Solvency isn't an issue, so more profit just adds to what's being regarded as overkill. Bodaken himself is drawing a $4.6 million salary, which is significantly higher than the salary of his fellow health plan CEOs, according to critics.

Also, many say the BSC pledge is an attempt to neutralize support for a bill the California Assembly passed the week prior, which would allow the state insurance commissioner to reject unreasonable rate increases. The federal government has recommended such authority for all states.

BENEFIT OF THE DOUBT

It's easy to condemn BSC from a consumer point of view, yet from an industry point of view, does Bodaken deserve the benefit of the doubt or not?

Bodaken became CEO in 2000, and since then, has turned the health plan around, increasing revenue and membership. In his first four years on the job, he doubled company revenue from $3 billion to $6 billion. He doesn't earn the stock options that other chief executives enjoy. Instead, BSC executive compensation includes incentives for community service-a policy Bodaken instituted.

Without January's premium increases, the plan said it will go ahead and absorb $24 million in medical costs.

I tried to reach Bodaken for comment. He responded via email, saying: "Many employers, hospitals, physician groups and other health plans have excellent programs to reduce unnecessary costs. We must all work together and build on those successes to deliver greater value for every healthcare dollar. That's how we can make health reform a success and achieve universal coverage."

He says BSC is putting affordability before profit. The challenge now is that he must convince the public that the pledge is sincere. I predict he will leave BSC before long, and the 2% profit pledge will be revised. Tell me what you think.

Julie Miller is editor-in-chief of MANAGED HEALTHCARE EXECUTIVE. She can be reached at julie.miller@advanstar.com

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