Making A Case for Regulating Medical Insurance In California

Published on

Breathtaking premium hikes have prompted California's new insurance commissioner to sponsor a bill that would require medical insurers to get state approval before increasing rates.

Auto and homeowner insurance premiums have been regulated by the state of California for two decades. Maybe it's time that healthcare premiums are too.

Insurance companies inadvertently have been making that case against themselves recently by announcing staggering double-digit rate increases, then backing off in the face of government scrutiny and public outrage.

Aetna Inc. and Anthem Blue Cross scaled back planned premium hikes, and Blue Shield of California canceled one altogether after new state Insurance Commissioner Dave Jones denounced the increases as excessive. In total, 865,000 policyholders got lucky.

The insurers didn't have to cave. It was strictly voluntary.

In fact, Anthem planned to proceed Sunday with a rate hike averaging 16%, plus higher deductibles and co-pays, for nearly 151,000 customers. This despite the state  Department of Managed Health Care — a separate entity from the insurance commissioner — proclaiming Friday that the increase was "unreasonable."

Insurance is highly arcane and tends to make the eyes glaze — until someone is forced to pony up for a pricey premium.

Or, worse, the policyholder is jacked around by some faceless clerk in a far-off corner of the continent, an HMO minion who is arbitrarily interpreting the fine print and denying a medical procedure, perhaps a life-or-death treatment.

Legislation pending in Sacramento wouldn't affect the approval or denial of care. But it would control rising premium costs.

Jones is sponsoring a bill (AB 52), carried by Assemblyman Mike Feuer (D-Los Angeles), that would require insurers to obtain approval from state regulators before increasing medical insurance rates.

The rates could be modified or denied by the managed healthcare department or the insurance commissioner. Generally, the department assesses HMO plans and the commissioner oversees other policies, including PPOs. Currently both entities can review rates but can't reject them.

The incessant budget deficit is occupying the energy and time of Gov. Jerry Brown and legislative leaders. But there's heavy lobbying activity and public anxiety over medical insurance.

"It's a huge deal from the standpoint of everyday Californians," Feuer says. "This is one of the — if not the — biggest issues confronting California families today. Many can't afford insurance anymore and have to make a choice between that and the kind of food they buy."

More than 7 million Californians are uninsured, the lawmaker says.

Citing federal government data, he adds that healthcare costs nationally rose 3.4% last year, while California insurers were proposing rate hikes of up to 39%.

His bill cleared its first committee hurdle last week, but with only Democratic support.

One freshman Democrat — Richard Pan, a Sacramento County  physician — joined Republicans in voting against it. The medical profession largely opposes the measure because it would curtail the flow of money into the healthcare industry.

Insurance and healthcare lobbyists worked the hall outside the committee room. They are two of the most powerful interests in the Capitol.

Health and accident insurers contributed around $1.4 million to legislators' political kitties during the last election cycle, according to MAPLight, a nonpartisan group that researches money's influence on politics. The medical profession kicked in at least $4 million.

Opponents of the bill have a valid point in arguing that the federal and — especially — state governments are driving up costs for ordinary policyholders by shortchanging providers of Medicare and Medi-Cal services.

Federal Medicare barely pays for the cost of seniors' care, they maintain. And state Medi-Cal for poor people offers the lowest physician rates of any Medicaid program in the nation.

"Half the [nation's] medical costs are paid by government programs," says Patrick Johnston, chief executive of the California Assn. of Health Plans. "If you don't pay adequate rates to providers, then you can't blame doctors and hospitals for demanding higher health insurance rates.

"Medical groups and hospitals have to make up what they lose on government patients."

Johnston, a former Democratic legislator from Stockton who specialized in insurance, estimates that government healthcare stinginess adds nearly $1,800 a year to an average family's medical coverage.

Put another way: When a governor and Legislature reduce Medi-Cal provider rates — a habit they seem addicted to — their budget-balancing cut becomes a hidden tax on private policyholders.

But don't cry for the insurers, supporters of the rate-control bill say. They point to large profit increases reported by insurers last year, including 21% for UnitedHealth, 13% for WellPoint — parent of Anthem — and 38% for Aetna, according to a national activist organization called Healthcare for America Now.

Johnston claims that allowing the commissioner or department to veto rates would conflict with a major feature of the new federal healthcare act. Starting in 2014, states will create "exchanges" — an affordable insurance market for individuals without group coverage — and negotiate with insurers for acceptable premium costs. State exchange operators could negotiate for plans that the other state entities might reject, he says.

But the Obama administration is urging that the states exercise more control over premium pricing because, under the federal law, everyone will be required to buy insurance.

Jones dismisses the opponents' contention that giving him veto power over rates would result in creation of a huge new bureaucracy. "That's just nuts," he says. "Any additional cost would be minor at most."

As an assemblyman, Jones carried three similar bills, progressing further each time. Last year, his measure was killed by the Senate on the final night of the legislative session.

The bill's time has come. We don't hear much controversy about auto or homeowner policies these days, not like what we heard  before voters gave strong regulatory powers to an elected insurance commissioner.

We shouldn't be leaving medical coverage costs solely to the whim of the insurance industry.

[email protected]

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases