Key Vote This Week on “Prior Approval” of Premiums

Reports filed with the Secretary of State on Friday show that the largest California health insurers paid lobbyists $1 million to influence state legislators and the governor in the first three months of 2004, according to the Foundation for Taxpayer and Consumer Rights (FTCR).

On Wednesday, the Senate Insurance Committee will vote on legislation, SB 1349 (Ortiz), requiring health insurers to justify overhead expenses, including lobbying fees, and receive approval for them from the Insurance Commissioner before passing costs on to patients and business owners in the form of higher premiums.

“Corporateering health insurers are spending millions of our premium dollars hiring well-heeled lobbyists in Sacramento to advocate their interests at the expense of patients,” said Jerry Flanagan of FTCR. “Meanwhile, health insurers are terribly inefficient, pay their top executives lavish salaries, and are earning record profits. The Senate Insurance Committee should support new legislation on Wednesday that will require health insurers to justify their expenses before mailing premium increases to patients and business owners.”

Lobbying Expenditures 1/1/04-3/31/04
Aetna $60,300
Assoc. of CA Life & Health Insurance Co. $93,842
Blue Cross of California $246,738
Blue Shield of California $148,115
CA Assoc. of Health Underwriters $32,967
CA Assoc. of Health Plans $120,478
Cigna $23,166
Health Net $99,689
Kaiser Permanente $195,995
PacifiCare $61,793
TOTAL $1,083,083

Source: http://www.cal-access.ss.ca.gov

According to quarterly reports filed with the Secretary of States office on Friday, seven health insurers and three lobbying associations recorded more than $1 million in lobbying expenses between January 1 and March 30. Lobbying expenses include salaries for in-house lobbyists and the cost of hiring outside lobbying firms. Gifts and contributions to lawmakers are not included in these totals. Blue Cross and the non-profit Kaiser spent the most: $246,738 and $195,995, respectively.

According to the U.S. Department of Health and Human Services and the Center for Medicare and Medicaid Services, health insurance overhead and administrative costs (including lobbying fees) increased by 16.4 percent in 2002, after a 12.5 percent increase in 2001, making it the fastest growing component of health care spending over the past three years.[i]

Though health insurers claim that skyrocketing premiums are the result of increasing medical costs:

* In 2002, the cost of health insurance for a family of four increased 250% more than the rate of medical inflation.[ii]

* HMOs and health insurers spend up to 25 cents out of every premium dollar they collect on administration, overhead, advertising and executive salaries.[iii]

* A recent report found that the highest-paid executives at 11 for-profit, publicly traded health insurance companies were paid an average of $15.1 million in 2002.[iv]

A lack of competition among health insurers has contributed to greater inefficiency and higher premiums. In the state, seven insurers provide health insurance for 86% of the market. Four plans, Kaiser Foundation, Blue Cross, PacifiCare, and Health Net account for more than half.[v]

The landmark auto insurance reform initiative, Proposition 103, established a ‘prior approval‘ system similar to that proposed by SB 1349 for auto, home, and property/casualty insurance. In the fifteen years since Prop 103 went in to effect, auto insurance rates in California went down by 22%. Nationally, rates rose over 30% during this period. Insurance products have remained broadly available and competitive, and the uninsured motorist population has declined by 38%. California motorists have saved over $23 billion since 1988 under the prior approval system.[vi] Using Prop 103, FTCR blocked $35 million in medical malpractice and approximately $50 million in home owner premium increases in 2003.

Health insurance premium oversight is one of three health care cost control measures for which FTCR found wide support during a two-year statewide town hall process. For more information on the town hall process and model cost control laws, please visit http://www.CalHealthConsensus.org

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The Foundation for Taxpayer and Consumer Rights is a non-profit and non-partisan consumer advocacy organization. For more information please visit: http://www.consumerwatchdog.org

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[i] Lett, Katherine; Smith, Cynthia; Cowan, Cathy; Catlin, Aaron, “Health Spending Rebound Continues in 2002,” Health Affairs, Volume 23, Number 1, 2004

[ii] Kaiser Family Foundation, “Employer Health Benefits 2002 Summary of Findings,” February 2003

[iii] California Medical Association, “Knox-Keene Health Plan Expenditures Summary, FY 2001-2002”

[iv] Families USA, “Top Dollar: CEO Compensation in Medicare’s Private Insurance Plans,” June 2003

[v] Allan Baumgarten for the California Healthcare Foundation, “California Managed Care Review 2002”

[vi] Consumer Federation of America, “Why Not The Best? The Most Effective Auto Insurance Regulation in the Nation,” Robert Hunter, Director of Insurance, June 2001