CA Health Premium Regulation Bill Passes Key Committee: Would Fill Cost Control Void in Federal Reform

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Jones/Feuer Legislation Addresses Blue Cross 39% Rate Increase, Would Require Insurers to Get "Prior Approval”

Sacramento, CA – A crucially needed bill to control health insurance premiums through rate regulation passed its first test with majority approval today by the Health Committee of the California Assembly, after Consumer Watchdog and an Anthem Blue Cross policyholder hit with a 34% rate increase testified  that the legislation would fill a gaping loophole in the federal health reform legislation. The measure would regulate what California insurers can charge, while encouraging a competitive market for health insurance.
The federal reform legislation passed by the House of Representatives on Sunday night will ultimately require every American to show proof of having health insurance or face a tax penalty.  Yet nothing in the federal legislation adequately restrains how much a health insurer can charge for coverage. However, the measure does provide millions of dollars in grant funds for states to develop such regulation on their own. Consumer Watchdog noted that the California legislation would qualify the state for such funds.
AB 2578 by Assembly Member Dave Jones (D-Sacramento) and Assembly Member Mike Feuer (D-Los Angeles), passed today by the Assembly Health Committee (final vote tally pending, but 11 Yes votes recorded), would require HMOs and health insurers to seek “prior approval” for rate increases and justify overhead costs—just as many lines of insurance, including auto, already do under California’s landmark insurance reform law Proposition 103. Proposition 103 does not apply to health insurers. Consumer Watchdog founder Harvey Rosenfield wrote Proposition 103 which was approved by voters in 1988, not long after the California legislature mandated the purchase of auto insurance.
“Now that Congress has mandated that every American must show proof of owning a health insurance policy or face tax fines, California must ensure that the prices that insurers charge for coverage are fair,” said Jerry Flanagan, Health Care Policy Director for Consumer Watchdog, as he testified at the Health Committee hearing.  “AB 2578 would bar excessive rates and allow consumers to intervene in the approval process.  Proposition 103 is the nation’s most successful insurance regulation and is a model for health care reform.”

“Prior approval” regulation would help contain health insurance rate increases by requiring insurers to justify proposed increases before raising rates, and allowing thorough scrutiny of insurance company finances. For example, such regulation would require Anthem Blue Cross of California to open its books to scrutiny by the public and independent actuaries and explain why a recent 39% rate increase was necessary. In particular, the company would be required to explain why the increase was necessary in light of the fact that the company transferred $4.8 billion in profit to parent company WellPoint Inc. since the company merged in 2004 with Anthem. Blue Cross also maintains a surplus of $1 billion more than the law requires for financial safety, and has spent billions on other Wellpoint-affiliated companies for “service contracts.”

Read more about Consumer Watchdog’s analysis of Anthem Blue Cross’s profit transfers, and a chart of all known transfers since 2003. 

California’s landmark prior approval rate regulation, Proposition 103, shows what a difference well-crafted regulation can make, for both consumers and the health of a competitive market. Prop 103 has saved drivers $62 billion since 1988. According to the Consumer Federation of America (“CFA”), Proposition 103 is the nation’s most successful insurance reform. To read more, click here to download a 2008 CFA report.  According to the Consumer Federation of America, under Prop 103:
* California drivers have saved $61.8 billion in auto insurance rates, an average of $1670 per Californian;
* California is first among all states in holding down insurance premiums, with a 12.9% increase compared to an average national increase of 50%;
* California is the fourth most competitive auto insurance market in the nation; Completely unregulated Illinois ranks 44th.
Health insurance industry waste is not limited to the for-profit market.  For example, together the state’s two largest nonprofits have more than $13.3 billion in excess premium funded reserves (Blue Shield $2.6 billion and Kaiser $10.7 billion). This is 977% more than the amount required by state regulators to provide financial stability in even the most volatile market, and enough money to provide health insurance to over 900,000 families for an entire year.
Extreme market control has allowed HMOs and insurance companies to raise prices while cutting back on coverage. In California, just five HMOs control approximately 96% of the market. Premiums, propelled by huge profits, questionable accounting and wasteful overhead, have skyrocketed, increasing over 87% during the past six years. These rate hikes greatly outpace worker earnings and the cost of providing care. 
According to Consumer Watchdog, AB 2578 is needed to keep HMO and health insurance rates under control because:
* Already too many Californians cannot afford basic health care, with one in four Californians under age 65 now uninsured;
* Small businesses and thousands more individually insured Californians are one more rate increase away from being priced out of coverage.
Laurel Kaufer of the San Fernando Valley, whose individual Anthem Blue Cross policy is set to spike 34%, said “I am required to seek prior approval before I can expect to receive coverage from my insurance company. There is no good reason why Blue Cross should be allowed to raise my rates without prior approval!”

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Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at:

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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