Health Insurers’ Rates Targeted in the Capitol

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The insurance-driven costs that millions of Californians pay to drive their cars, work at their jobs and protect their homes are closely regulated, in part because of generations of decisions by the Legislature and in part because voters demanded it.

But despite the attention paid in recent years to health care reform, the price tag to 23 million California consumers of billions of dollars worth of care is only scantly regulated, at least directly. Health insurers’ rates are set by the health insurers themselves reflecting the market and their costs.

For consumer advocates, command-and-control regulation is long overdue.

“The ever-increasing health insurance premiums have become virtually a locked door keeping out millions of Californians from health insurance and health care services,” said Doug Heller of the Santa Monica-based Consumer Watchdog.

Health care insurers, and others, say new regulations would upset a market place and do nothing to attack the core problem – the cost of medical care.

Moreover, they note that existing law already entails regulation: Current rules require disclosure of data, independently verified, and a limit of 15 percent to 20 percent on overhead and administrative expenses, while the rest of the money, by law, must be spent on medical care. Companies that fail to meet the benchmarks are subject to penalties.

“So the purported reason to have rate regulation on top of the current rate regulation is to control prices, but the underlying costs are not addressed,” said Pat Johnston, who heads the California Association of Health Plans, a group that represents health care insurers and providers.

“The big question is how to make health care affordable for individuals,” he added.

By law, state regulators – the Department of Insurance and the Department of Managed Health Care – can opine at length about the rates but have no role in setting them. In fact, a law approved in the final hours of last year’s legislative session and signed by former Gov. Arnold Schwarzenegger specifically bars regulators from establishing rates for HMOs or any contractual health care services.

That law did require, however, health insurers to submit detailed information to regulators, who can judge whether the company’s proposed rate increase is reasonable and then post the information – and their opinion – on the regulators’ web sites.

Moreover, the law, which went into effect in January, was viewed in the Capitol as the first in a two-step dance leading to rate regulation, which only narrowly was rejected once before and may stand a better chance with Gov. Jerry Brown than with his predecessor, Arnold Schwarzenegger.

It was invoked for the first time last week, when the DMHC declared that Anthem Blue Cross’ announcement of a 16 percent rate increase was “unreasonable.” Anthem’s rate hike, effective May 1, affects 120,000 customers.

DMHC spokeswoman Lynne Randolph told the regulator that “we have little choice but to publicly express our disappointment that Anthem Blue Cross didn’t lower the rates as we requested.”

Insurance Commissioner Dave Jones holds a similar view. He, too, has complained about health care insurers’ rates.

“My sole remedy, and the public’s sole remedy, is to send insurers to my web site if I think their rates are excessive. That is simply inadequate,” Jones said. “Californians have been suffering double-digit rate increases year after year for at least eight or nine years. It’s unsustainable.”

A regulation bill pushed by Jones – then an Assemblyman — nearly emerged from the Capitol last year but failed in the Senate by two votes because two Democratic lawmakers – the late Jenny Oropeza of Long Beach and Pat Wiggins of Santa Rosa – were absent. It was the third rate-regulation attempt in as many years.

The stage is now set for another battle over regulating health care rates.  

The proposal is contained in AB 52 by Assemblyman Mike Feuer, D-Los Angeles. His bill – described by Heller as the “consumer bill of the year” — requires insurers to get prior approval from the state, bars any rates that are excessive or discriminatory and gives regulators the power to approve, deny or rewrite a rate application.

Feuer’s bill also allows regulators to rescind previously adopted rates, exempts some programs such as Medi-Cal and Healthy Families, and puts the burden of compliance on the companies and their top executives, who would be required to submit their rate requests at least two months before the proposed effective date.

It requires that data submitted in connection with a rate request be available for disclosure under the Public Records Act, which governs the public’s access to government information.  

“Californians should not have to depend on the whim of an insurance company to halt an unjustified, major rate increase,” Feuer said. “Until AB 52 is signed into law, California families will continue to live in fear that they are just one rate hike away from no longer being able to afford health insurance.”

The potential pocketbook impact of the bill is huge – it could run into billions of dollars – which means the political fight will be well-financed on both sides.

Jones, who runs the most powerful state insurance regulatory agency in the nation, has jurisdiction over so-called PPOs and personal insurance policies covering about two million people. The DMHC has authority over coverage for about 19 million, most covered by HMOs.

Health care insurers – not surprisingly – oppose Feuer’s bill, as do an array of business interests led by the California Chamber of Commerce and an array of local chambers.

A key opponent is the California Medical Association, which represents 35,000 California physicians and rarely sides with HMOs in the Capitol’s political wars. Dustin Corcoran, the top executive at the CMA, said the group’s inclusion among the opponents reflected the “strange bedfellows” aspect of politics, but noted that the CMA’s opposition was driven by concerns about the measure’s economic impact.

“By arbitrarily capping premiums that can be assessed irrespective of the underlying costs, it will just arbitrarily cut providers’ reimbursements,” he said. The funds “flowing down will not be reflective of the true cost of delivering care.”

“It isn’t often for us to be on the same side as the health plans, but we think this bill is the wrong solution,” he added.

Johnston agreed.

“A new law to impose more bureaucratic and costly compliance on health insurance companies will not address the cost shift from government programs, nor will it reasonably go after strategies to contain costs,” he said.

But for the bill’s backers, the greater economic impact is on those paying the increased rates than on the companies who “like the ability to continue to make excessive profits,” Jones said.

Although unsuccessful in earlier years, “each time we’ve moved it a bit further. But it’s a big fight,” he added.

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