Kai Ryssdal: California residents woke up to some surprising news today. Blue Shield, one of the biggest insurance companies in the state, said it's going to be giving back $285 million to individual policyholders -- that is, people who don't get insurance through their jobs. That comes on top of another big giveback in June.
From the Marketplace Health Desk at WHYY, Gregory Warner explains why.
Gregory Warner: Patricia Passaretti already knows how she's going to spend her rebate check.
Patricia Passaretti: To replace my cell phone that just died!
I reached her on her mom's cell phone, coming out of yoga class. Passaretti is one of two million Blue Shield policyholders in California who buy their own insurance. She's unemployed, with decidedly mixed feelings about the rebate.
Passaretti: I mean I'm grateful to have anything coming back to me, but at the same time it almost feels like I'm paying too much anyway.
When people buy their own insurance -- as opposed to buying it through an employer -- premiums can up to twice as expensive. That's because insurers set those premiums by guessing how much health care each person will use that year.
JB Silvers of Case Western Reserve University says with Blue Shield:
JB Silvers: Well, they guessed too high. If they'd guessed too low, they'd have a big loss, so they're going to give some of it back.
Blue Shield promised to give back money to policyholders when profits exceeded 2 percent of revenue.
Rebates could become more common in the industry. The health care law sets a cap on insurance company profits and administrative expenses. Blue Shield, a nonprofit, may be doing what regulators will soon mandate, says Randy Bovjberg of the Urban Institute.
Randy Bovjberg: It is noticeable that they got out in front, by voluntarily providing the rebate.
So why did Blue Shield guess wrong? Why did it take in in premiums so much more than it paid out in claims? In part, it's the recession: People skimp on care in hard times. Patricia Passaretti says:
Passaretti: Yes, I did. I tried to avoid going to the doctor because I can't afford it right now.
While other studies show that a recession makes people healthier. Remember, I caught her at yoga class.
In Philadelphia, I'm Gregory Warner for Marketplace.