SACRAMENTO, CA — A California bill that would seek to limit health insurers’ profits and administrative expenses by mandating that health insurers spend at least 85% of their premium costs on medical care has cleared both legislative chambers.
Lawmakers also approved State Sen. Sheila Kuehl’s, D-Dist. 23, bill to create a single-payer health care system in the state, but that legislation is assumed by health care advocates and insurers to be dead on arrival. Gov. Arnold Schwarzenegger has repeatedly expressed his opposition to the bill, S.B. 840 (BestWire, Jan. 30, 2008).
"The fact that it is going to be vetoed is never a reason to not vote to make a statement," said Alan Katz, an insurance consultant and former president of the California Association of Health Underwriters.
The "85/15" legislation, S.B. 1440, would require all health insurance plans to follow the same set of rules on administrative costs. Health maintenance organizations and most Blue Cross Blue Shield plans are currently regulated by the Department of Managed Health Care, which limits administrative expenses to 15% of revenues. Other plans are regulated by the Department of Insurance, which does not (BestWire, Aug. 11, 2008). The bill cleared the Senate in a 23-15 vote after passing the Assembly 46-31.
Health insurers opposed the bill, saying benefits are the main drivers of health care costs, not administrative expenses.
Jerry Flanagan, a health care advocate for Consumer Watchdog, said the bill is an important piece of the health care puzzle, but is not without its drawbacks.
"We also have to regulate premiums," he said. "This bill creates a perverse incentive to raise premiums."
The bill faces an uncertain future in front of Schwarzenegger, who has threatened to not allow any bills to pass until the state has a budget in place.
Another health care bill strongly favored by health care reform advocates, S.B. 1522, failed to win approval in the Assembly. The legislation would have established five broad types of individual market plans, with different levels of coverage, costs and benefits. It would have set certain minimum coverage mandates while offering comparisons between the plans (BestWire, Aug. 11, 2008).
A bill to restrict the practice of rescissions also recently passed the legislature and is awaiting action by the governor. A.B. 1945 would establish that a patient’s health insurance cannot be rescinded unless the policyholder intentionally misrepresented or omitted health information on the application for coverage (BestWire, Sept. 2, 2008).
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