HSS Struggle with Blue Shield Continues, Board Subsidizes Plan & Adopts Cost Savings Policies

In an effort to contain costs in the face of Blue Shield’s deplorable price gouging, last week the Health Services (HSS) Board approved a plan to pay $5.2 million to subsidize Blue Shield premium rates for 2013, as well as adopt a flex funding system for paying claims generated by active employees and early retirees.

When Blue Shield approached HSS with its renewal rates, it had incorporated a general rate increase of more than 15%. Blue Shield cited it was raising rates in anticipation of employees migrating to Kaiser because of the newly negotiated premium-sharing plan. However, Blue Shield’s rate hike is one whole year in advance of the new health care agreement taking effect. Furthermore, the new agreement was crafted in a manner to minimize any plan migration.
Blue Shield also stated that rates are being raised in part because of increasing plan usage by plan members. However, when HSS requested data supporting this claim, the insurance company refused to provide any documentation, citing that it is proprietary information.
Because it is already mid-way through 2012, HSS Board members feared if they did not continue to contract with Blue Shield for the following year, it would be too late to contract with another mid-plan provider and continue offering an option in between Kaiser and City Plan. Blue Shield is the most popular plan for Local 21 members.
The $5.2 million rate stabilization plan pays down a portion of the premium increase for 2013 with funds returned to HSS from Blue Shield in previous years, which is mandated if an insurance provider reaches its income ceiling. A similar subsidy for Blue Shield was adopted last year. After this year, those surplus funds will be depleted.

Flex Funding Provides Greater Transparency, Oversight of Blue Shield

Additionally, the adoption of a flex funding system, which marks a major change in how claims are paid, will also help lower rates on an ongoing basis starting in 2013. Currently, HSS pays Blue Shield a flat premium per employee. Blue Shield is responsible for covering all claims, even if higher than anticipated claims are generated. With a flex funding plan, HSS pays less but also assumes any risk of claims exceeding the anticipated amount.
In an analysis of past claims, the City would have saved an average of $7.9 million per year if it had been flex funded. Flex funding also offers more transparency and clarity around costs, and allows for more scrutiny of whether Blue Shield is meeting its obligations to pay claims. It is a practice being adopted by many large employers, including CalPERS, which adopted a similar plan three weeks ago. 
Combined, the rate stabilization subsidy and a move to flex funding will result in a total 6% increase in active employees’ rates for the 2013 plan year, instead of +15%. However, because the new premium sharing agreement we have with the City does not go into effect until 2014, this will not immediately impact medically single employees, who will not begin paying any premiums until the following year. Employees at the +1 and +2 or more level will see a slight increase in their premiums in 2013, as a portion of that 6% will be picked up by the City. Another open enrollment period will take place prior to January 2013, when the new plan year starts.
Representatives from Local 21 and other city unions were present to urge the Board to adopt the flex funding and rate subsidy to contain growing premium costs. Speakers also stressed the importance of addressing Blue Shield’s price gouging and lack of transparency and accountability, as well as exploring other mid-plan providers for 2014.