Measure Modeled on Landmark Auto Reform Would Require Insurers to Justify Increases and Get Approval Before Raising Rates

Sacramento, CA — Consumers enduring double-digit health insurance increases joined Assemblyman Dave Jones (D-Sacramento) and consumer advocates today to support Jones’ legislation requiring HMOs and health insurers to justify their rates and get approval for increases.

Jones’ measure is especially important in light of proposals by Gov. Arnold Schwarzenegger and Senator Don Perata (D-Oakland) that would require all Californians to buy health insurance but allow insurers to charge whatever they choose. The legislation is similar to requirements in the auto insurance market that have saved drivers $23 billion since 1988. The measure would control the type of administrative waste and profiteering that allowed Blue Cross of California to keep, as overhead and profit, 50% of every premium dollar collected from individual policyholders.

“Our premium has shot up 43% since 2003, and the out of pocket maximum went from $3,000 to $5,000,” said Sharon Fowler of San Diego. My husband will go on Medicare this year and my coverage alone will cost $415 in January — another 14% increase. Who knows how many rate increases I’ll get next year. It’s funny that you have to wish you were older to get some health insurance relief through Medicare.”

Laurel Kaufer, a self-employed single mother of two teen-aged boys, has struggled to balance health care costs with the need to seek care. Kaufer’s current plan with Blue Cross has a $3,000 family deductible and $12,000 out of pocket family maximum, and a minimum of a 30% co-pay. The premium for this bare-bones plan is $671 a month, up 30% in just 18 months.

“No one should be put in the position of having to consider these factors when faced with a potential emergency or oncoming illness, doing a juggling act with their or their children’s health, yet that seems to be exactly what insurance companies want us to do, all for the sake of their bottom line,’ said Kaufer.

Just five California HMOs (Kaiser, Blue Shield, Blue Cross, PacifiCare, and HealthNet) have recorded profit increases of $11.7 billion since 2002. 4 of the companies transferred $3.2 billion in profit to out-of-state parent companies since 2002. The 6 largest HMOs spent $1.6 billion in marketing in 2006.

The proposed legislation, AB 1554, would require insurers to justify overhead costs and excessive profits before raising rates. Proposed rate increases would be denied if they were deemed excessive or unfair. Rates would not be set by the state, but the transparent process of public review would assure that increases are justified.

“This bill should be passed before the Legislature even contemplates requiring all Californians to buy health insurance,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “While HMOs and health insurers have racked up record profits and wasted billions on overhead, millions of Californians have been forced into bare-bones coverage that offers little protection when they get sick, or have dropped coverage altogether.”

FTCR said the reform is necessary regardless of whether proposals requiring Californians to purchase health coverage become law. HMO and health insurance overhead — including administration, profit, advertising, and executive salaries — is the fastest-growing component of health care spending (see attached fact sheet).

The proposed legislation, AB 1554:

* Requires health plans to provide detailed financial information to the regulator with each premium increase request.

* Establishes a clear legislative directive that no rate, co-payment or deductible shall be approved or remain in effect which is deemed to be “unfair or excessive.”
* Allows consumers and consumer groups to intervene in rate review proceedings to ensure that the legislative intent is implemented.

Proposition 103, authored by consumer activist Harvey Rosenfield, founder of the Foundation for Taxpayer and Consumer Rights, and approved by voters in 1988, established a similar “prior approval” system for many lines of insurance. During the decade after Proposition 103 was adopted, the uninsured motorist population declined by 38%.

Between 1989 to 2004 California auto insurance premiums decreased 7% while premiums in the rest of the country increased 47%. Since just 2003, the rate challenges of one consumer group, the Foundation for Taxpayer and Consumer Rights, have saved homeowners, motorists and doctors $800.95 million in premiums.

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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at: www.ConsumerWatchdog.org.