HMO Premiums and Profits Increase As Health Care Claims Decrease

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FTCR Calls for An Investigation Into Unfair Health Care Premiums

The Foundation for Taxpayer and Consumer Rights (FTCR) has called for an investigation into unfair rates in response to a recent Goldman Sachs report projecting increased health insurer profits through 2006. The Goldman Sachs report cited evidence demonstrating that the health care industry has strategically raised premiums despite the fact that health care claim values continue to decrease. Managed care companies, according to Business Wire/Health Wire release, will continue to experience profit growth “due to premium acceleration and medical cost deceleration.” As questions concerning the interplay of premium costs and a patient care increase, the state Assembly Health Committee will vote next week on a bill designed to strengthen protections when HMOs deny access to medical care.

“It is unconscionable that HMOs continue to gouge businesses and consumers with high premiums while they block access to necessary medical care,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. “State regulators should examine unfair rate setting in HMO premiums. State legislators should realize that HMOs are raising premiums to increase their own profitability at the expense of patient health.”

In the Goldman Sachs report managed care analyst, Charles Boorady, predicts that HMO profitability will continue to increase. “The tipping point of the current up cycle [for managed care profitability] is at least 2 years away,” said Boorady.

Increasing health care cost dramatically impact the ability of individuals to access necessary health services:

– In 2001, the cost of employer-provided health benefits soared by 11.2% over 2000 rates. Employers provide health care benefits to 65% of Californians with health coverage. As a result of high costs, employers are increasing co-pays to employees while others consider dropping coverage altogether.

– Health care premiums are expected to rise 20% in 2002 for all consumer classes.

The Foundation for Taxpayer and Consumer Rights has consistently highlighted systemic denials of necessary medical care by state health insurers. Furthermore, FTCR has found that skyrocketing health care premiums undermine access to basic health care benefits. Similar conditions in the auto and home insurance markets have resulted in “prior approval” systems in which insurers are required to receive rate approval from state agencies prior to raising rates.

A patient protection bill, SB 458 (D-Escutia), will be voted on by the Assembly Health Committee on Tuesday, June 18. The bill is a clean-up measure to the 1999 California Patients’ Bill of Rights which intended to provide patients the right to take HMOs to court when they are harmed by the denial of necessary medical care. HMOs have systemically circumvented the 1999 law by requiring enrollees to waive their right to go to court as a requirement of entering into a health care insurance contract. Consumer advocates argue that SB 458 would put in place a necessary legal deterrence for HMOs that deny patient access to necessary care in order to increase corporate profits.

Health insurers, like Kaiser Permanente, have argued that such accountability measures would result in increased costs for employers and patients.

Kaiser Permanente and other health insurers have used phony arguments that equate premium increases to HMO accountability,” said Jerry Flanagan. “In fact, HMOs are only concerned with their own profit margins and are raising rates despite a slow-down in medical costs.”

For more information on the Foundation for Taxpayer and Consumer Rights visit

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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