SB 26 Would Require ‘Prior Approval’ of HMO Rates

SAN FRANCISCO. Health Net, one of California’s largest health insurers, reported a 37 percent 1st quarter profit increase over 2002 as result of lower medical costs and increased revenues. State legislation, SB 26 (Senator Figueroa, D- Fremont), pending in the Senate Insurance Committee, seeks to protect consumers and employers from unfair or excessive health care rates by requiring state insurers to get state approval of proposed rate increases. Health Net‘s profit increase came as its commercial enrollment declined by 3.6 percent.

“Dramatic profit increases fueled by skyrocketing premiums mean more and more California consumers and business owners cannot afford health insurance,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “It is long overdue to empower the state to deny excessive and unfair health care rates like we already do for auto and home insurance.”

SB 26 requires HMOs and health insurers to get “prior approval” from state oversight agencies before raising premiums, co-pays and deductibles. Proposed rate increases will be denied if they are deemed excessive or unfair. State regulators are directed to examine health insurer profits, surpluses, salaries and overhead costs. The standards used for such approval are similar to those used for auto and home insurance for over a decade in California.

“HMO profits are uninsuring the insured in California,” said Flanagan. “Consumers need all the help they can get in order to battle excessive HMO profiteering.”

There are over 6.2 million uninsured in the state of California who represent over 20% of the state’s population under the age of 65. The numbers and percentages of uninsured Californians have been steadily growing for the past 25 years and are projected to continue to grow for the next decade without state action to control costs.

Health Net‘s announcement comes on the heels of a number of other health insurer profit increases:

* Molina Healthcare, Inc., serving state sponsored Medicaid enrollees, saw earnings rise to $30.5 million in 2002 up 115% from 1998 levels.

* PacifiCare Health Systems Inc., a large operator of Medicare health plans, reported that 1st quarter 2003 profits outpaced expected results: $1.90 per share — more than twice projected levels.

* Cigna Corporation reported a net income of $236 million for the 1st quarter of 2003 — up from $218 million for the same period in 2002. Cigna‘s revenue increased $100 million during the same period (NY Times, 5/3/03).

The landmark auto insurance reform initiative, Proposition 103, championed by FTCR’s Harvey Rosenfield in 1988 established a ‘prior approval‘ system for many lines of insurance. During the decade after Proposition was adopted, auto insurance rates in California went down by 4.0% while insurance products remain broadly available and competitive, and the uninsured motorist population declined by 38%. Nationally, rates rose over 25% during this period. California consumers saved over $23 billion in auto insurance premiums since 1988 under the prior approval system.