At a hearing in L.A., Garamendi grills insurance company executives about why premiums have soared 60% in four years.
Los Angeles Times
Concerned that some health insurers may be price gouging to boost profits, California Insurance Commissioner John Garamendi said Thursday that he might seek to raise the percentage of premium dollars that, by regulation, must be spent on healthcare.
At a hearing in Los Angeles, Garamendi grilled executives of five health insurance companies about why premiums have soared 60% in four years, causing more employers and individuals to drop coverage.
“At the same time that this meltdown is occurring, many insurers continue to enjoy very healthy profit margins,” Garamendi said.
Garamendi singled out Blue Cross of California for criticism, noting that its profit margins on certain insurance plans rose from about 15% to 24% in recent years. The company’s trend on healthcare spending, he noted, was just the opposite — declining from 80% of premiums in 2000 to 68% last year.
“It’s unconscionable,” Garamendi said.
Blue Cross executives responded that the company’s overall profit margin in California is 6% to 7% when its HMO plans, which are not regulated by Garamendi,
But some of the company’s fastest growing — and most profitable — plans are new ones that offer low premiums in exchange for high deductibles or limited benefits.
The most controversial among them is a plan called Tonik. Aimed at young adults who are generally healthy, Tonik does not cover maternity benefits. Garamendi said such plans amounted to “cherry-picking,” or orienting coverage to attract healthy members, who are cheaper to underwrite.
“They are looking to find individuals that do not get sick,” Garamendi said in an interview. The plans “are all designed to appeal to people who don’t need medical services. That increases their bottom-line profit.”
Blue Cross regional Vice President Ann-Louise Kuhns told Garamendi at the hearing that Tonik and some of the other new plans were aimed at people who hadn’t previously bought health insurance because they couldn’t afford it or viewed it as too expensive.
The plans’ popularity, Kuhns said, showed that they were meeting a need. “If we were offering a product that people didn’t like, they don’t have to buy it,” she said.
Kuhns said rapid growth in these high-deductible plans had temporarily cut the share of premiums spent on healthcare. That share is expected to rise as those members remain longer with Blue Cross.
Garamendi said medical spending was lower in plans purchased by individuals than in employer-sponsored coverage. He said he believed that was because individuals lacked the purchasing power to drive better deals.
To change that, Garamendi said he might seek to raise the minimum share of individual-plan premiums — currently 50% — that insurers must spend on medical care.
But one consumer advocate accused Garamendi, who is running for lieutenant governor, of grandstanding for political gain.
Jamie Court, president of the Santa Monica-based Foundation for Taxpayer & Consumer Rights, said Garamendi should have taken such a step earlier, and that he doubted there was enough time for the commissioner to put through a new regulation before his term ended next year.
“This is an opportunity for Garamendi to score some points without landing any punches on the profiteers,” Court said.