Health Insurance Law Weekly

A recent finding by the Field Poll that California voters see the high profits of drug and health insurance companies and systemic waste and inefficiency as the top causes of rising health care costs is a warning to elected officials that health care reforms must start by getting insurer costs and premiums under control, said the Foundation for Taxpayer and Consumer Rights (FTCR).

“The poll drives home the fact that until the profits and administrative waste of insurers and HMOs are brought under control, Assembly Speaker Fabian Nunez, Senate Leader Don Perata and Gov. Arnold Schwarzenegger cannot require individuals and employers to buy unaffordable coverage,” said Jerry Flanagan, health policy director of the nonprofit, nonpartisan FTCR. “No such mandate can work without reforms to limit overhead and profit. The poll shows that Californians want access to affordable coverage not a mandate to purchase coverage from the private market.”

The poll also found that 81% of those surveyed want government to assure that all Californians have access to affordable coverage. “This large support backs FTCR’s proposal that the state should open its own nonprofit health plans to individuals and employers in addition to implementing insurance and HMO cost regulation,” said Flanagan. FTCR also proposes that the state employee health and pension benefit manager, CalPERs, bargain for lower pharmaceutical prices for all Californians.

According to the poll, Californians believe health care costs are rising because of:

– High profits made by drug companies and insurance companies: 65%

– Waste, fraud, and inefficiencies in the current system: 60%

California voters’ poll opinions are based on sound information, said FTCR. Data released by the Centers for Medicare and Medicaid Services (CMS) show that health insurer and HMO overhead are the fastest-growing portion of health care costs. Health insurers must be required to reduce their waste, administrative bloat and excessive profits, said FTCR, adding that the consumer-friendly concepts behind the Proposition 103 auto insurance reforms provide a well-developed, broadly accepted starting point. Since 1988, Prop 103 has saved California motorists about $24 billion, according to the Consumer Federation of America.

The chief bar to strong insurer and HMO cost controls and coverage guarantees in statewide reforms is the political clout of the industry, said FTCR. Health insurers have contributed $3.7 million to members of the Assembly, Senate, Governor Schwarzenegger and affiliated political campaigns since 2005.
Since taking office, Schwarzenegger alone has received nearly $1 million from health insurers, HMOs, and their executives. Altogether, Schwarzenegger has taken $4 million in campaign contributions from the health care industry since taking office, and many of those contributors gave lavishly to the governor’s inauguration party fund.

According FTCR, to succeed and be affordable, California health care reforms must:

– Cap insurance company overhead and regulate rates in the proven way that California regulates auto insurance rates under Prop 103;

– Curtail executive bonuses, which reached $240 million for one executive in
recent years;

– Prevent shifting of excess profits to out-of-state parent companies;

– End insurers’ practice of courting the healthiest prospects and rejecting or “pricing out” anyone who is ill or could become ill;

– Establish a state-wide prescription purchasing pool to leverage the buying power of all Californians to achieve affordable medications;

– Open the CalPers’ self-insured PPO plans to all Californians, forcing private insurers to become more efficient in order to compete.

The Foundation for Taxpayer and Consumer Rights (FTCR) is California’s leading public interest advocacy organization.