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Blue Shield of California Facing Growing Scrutiny

Blue Shield of California is facing allegations that it failed to pay back policy holders for excessive spending on administrative costs in 2014. If the claims prove true, the insurer could be required to provide additional rebates to its customers.

Blue Shield is the state's third-largest health insurer with 3.4 million customers, 5,000 employees, and $13.6 billion in revenue in 2014. The company’s cash reserves topped $4 million in 2012.

In 2015, Blue Shield was stripped of its tax-exempt status as a non-profit entity. In its tax audit report, the California Franchise Tax Board cited that the insurer had stockpiled "extraordinarily high surpluses” and failed to advance social welfare.

The latest criticism involves accounting errors made by Blue Shield regarding health insurance coverage provided through a marketplace created under the Affordable Care Act (ACA). As reported by the Los Angeles Times, companies selling health plans via ACA marketplaces must spend at least 80 percent of its customers’ premiums on their medical care or issue rebates to those customers.

Blue Shield failed to meet the spending threshold in 2014 and was forced to refund more than $64 million to its customers. According to a new complaint filed with the California Department of Managed Health Care, it may owe customers additional rebates.

When Blue Shield calculated its ratio of medical spending to administrative spending, which is known as the medical loss ratio (MLR), it neglected to account for claims that were paid in error. As alleged by former Blue Shield public policy director Michael Johnson, if the overpayments had been included, Blue Shield would have fallen further below the 80 percent threshold.

“The purpose of the MLR reform is to make transparent and limit the portion of premiums that insurers devote to profits and administration,” Johnson wrote in his complaint. “By counting the costs of administrative mistakes as medical spending, Blue Shield is making a mockery of the law.”

Johnson further argued: “If Blue Shield is allowed to get away with that, not only will its customers be cheated ... the door will be left open for other insurers to adopt Blue Shield’s dishonest accounting approach, and a key consumer protection of the Affordable Care Act will be undermined.”

As San Diego medical fraud lawyers, we will continue to monitor this issue. Please check back for updates.

If you or someone you love has fallen victim to medical fraud, don’t hesitate to contact a San Diego personal injury attorney at the Law Offices of Robert Vaage for a free consultation.