Curb on HMO price hikes urged

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A consumer group wants legislation to regulate premium hikes.

The Sacramento Bee

A California consumer advocacy group Thursday called for legislation to limit the ability of HMOs to raise health insurance premiums without prior permission from state regulators.

There’s no bill yet, and no sponsor on board. But the Foundation for Taxpayer and Consumer Rights said it wants a new law to prevent HMOs with vast cash reserves from increasing premiums unless state officials deem the rate increases necessary for the financial stability of the insurance company.

HMOs are required by state law to have enough cash on hand to meet unforeseen medical expenses, in order to protect patients, doctors and hospitals from unpaid claims in the event of bankruptcy. California does not regulate HMO premium increases.

Five of the state’s largest HMOs have built up reserves far in excess of minimum requirements while also increasing insurance premiums rapidly. Combined, the five have $2.2 billion more in reserves than is required by law. Three — Aetna, Blue Cross and Health Net — have roughly three times more in reserves than the minimum.

Next year, premiums will jump between 20 percent and 30 percent for employers that purchase insurance on behalf of most of California’s 18 million HMO members, studies show.

“It is outrageous that HMOs continue to gouge businesses and consumers while they hoard our premium dollars,” said the foundation’s Jerry Flanagan.

If the bill fails to get a sponsor, or fails to become law, Flanagan said his foundation will seek a ballot initiative as early as 2004.

To be sure, several HMOs in the state have landed in bankruptcy court in recent years, disrupting patient care and leaving stacks of unpaid bills to hospitals and doctors.

“With all the failed health plans and the rapid pace of inflation on medical costs, I would say it is very prudent to have reserves in excess of the state minimum,” said David Olson, head of investor relations for Health Net.

“Ample reserves suggest two things Wall Street wants to see in companies — fiscal conservatism and financial responsibility,” said Joshua Raskin, a managed care analyst with Lehman Brothers.

If premium increases are high in California, actual premiums here are lower than in the rest of the country. Last year, average premiums for single coverage in California were $197 a month compared with $221 nationwide, according to a survey by the Kaiser Family Foundation. Family coverage in the state was $521 on average compared with $588 nationwide.

Daniel Zingale, director of the California Department of Managed Health Care, which regulates HMOs, said he sees both good and bad in the high level of reserves accumulated by many HMOs.

On the one hand, Zingale said, excess reserves offer patients some reassurance that their HMO is financially solvent. On the other hand, he said, the state’s major HMOs have not performed as well in maintaining quality of care as they have in building financial stability.

“Managing care means keeping it affordable for patients, and costs are rising at an unacceptable rate,” Zingale said, “but we do have to give HMOs credit for meeting their financial stability requirements.”

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