HMOs Bucking State Control of Prescription Drug Benefits

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Legislation Would Protect Consumers When HMOs Deny Care

SACRAMENTO: Against the backdrop of a failed federal effort to approve a prescription drug benefit for seniors, a bill moving through the state legislature would help to ensure that patients receive the medications they need (SB 842 — Senator Jackie Speier). Two recent court decisions erroneously interpreted existing California law regarding the state’s authority to protect consumers when health insurers deny coverage of necessary medications. Kaiser Permanente, Blue Shield and the California Association of Health Plans have vigorously opposed the legislation saying that increased prescription drug cost cut into their profit margins. SB 842 will be considered by the Assembly Health Committee today at 1:30 pm in room 4202 of the State Capitol.

“From the consumer point of view, this is a necessary step to take back what the HMOs won in their legal wrangling. Without this legislation, there is no regulatory tool to protect consumers,” said Jerry Flanagan, Health Care Advocate for the Foundation for Taxpayer and Consumer Rights. “It is unconscionable that a so-called “health plan” could oppose simple legislation reaffirming the state’s right to protect consumers.”

The Knox-Keene Act, the legal framework created to regulate health insurers, clearly provided the Department of Managed Health Care (DMHC) broad authority to regulate all products offered by state health care plans. Nothing in that legislation limits this authority in the realm of prescription drugs. However, a recent court decision in Kaiser Foundation Health Plan, Inc. v. Zingale 2002 Cal. App. Lexis 4336 could effectively remove the state’s authority to ensure that patients have access to necessary prescription drugs.

“This bill is intended to clarify that it is and always has been the Legislature’s intent to entrust the Department with the authority to regulate how a health care service plan offers prescription drug benefits in order to protect consumers,” said Jerry Flanagan. “The clarification provided by this bill will allow the DMHC to continue to evaluate, and overturn, a health insurers exclusion of particular prescription drug benefits to ensure that consumers are appropriately protected.”

The California Association of Health Plans — the industry group representing state HMOs — cites increasing health care costs as the reason for their opposition to SB 842:

California’s private health care delivery system is fragile, and every one percent increase in health care premiums results in a $400 million cost to California’s employers. The ability of employers and individuals to purchase insurance — always tenuous — is particularly threatened when health care purchasers must confront sky-high health care inflation and a slowed economy at the same time.

Consumer advocates agree that health care costs are a roadblock to care for many Californians but called on health insurers to cut exploding profit margins – not necessary care.

Kaiser Permanente and other health insurers have used phony arguments that equate premium increases with treatment costs,” 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.”

A recent Goldman Sachs report cited evidence demonstrating that the health care industry has 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.”


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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