New Report Shows Why Health Care Reform Legislation Must Include Cost Controls

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Poll: Consumers More Worried About Health Care Rates Than Terrorist Attacks

SACRAMENTO — An historic health care conference committee is expected to announce a new draft of legislation late today or tomorrow that will provide health care benefits for the growing number of working Californians who do not have access to health care coverage. The previous draft of the legislation did not provide protections for consumers from unfair and excessive health care premiums even though a new study released today by the Kaiser Family Foundation shows that profiteering HMOs are responsible for three years of double-digit increases.

Under the proposed “pay or play” plan, employers with 20 or more employees must either provide health care benefits directly to workers or pay a fee for the worker to receive care from a state run health insurance purchasing pool. The most recent draft of the bill offers no protections for consumers on the amount of out-of-pocket charges they will be required to pay in order to access medical services.

“Health insurers should not be allowed to continue to reap record profits at the expense of consumers. A workable universal health care plan must require insurers, hospitals, and doctors to abide by appropriate rate caps,” Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “Skyrocketing health care premiums are uninsuring the insured.”

FTCR, which supports universal health care policy, has not taken a position on the conference committee proposal.

A report released today by the Kaiser Family Foundation found that employers are passing on higher costs to employees: Since 2000, employees’ share of premiums for family coverage has increased from $1,619 to $2,412 — a nearly 50% increase.

A Kaiser Family Foundation poll also released today shows that consumers worry more about being able to afford health insurance than they do about being victim of a terrorist attack: 33% vs. 8%.

HMOs and health plans claim that skyrocketing premiums are the result of increasing medical costs. However, in 2002, the cost of health insurance for a family of four increased 250% more than the rate of medical inflation according to a 2002 Kaiser Family Foundation report. According to a report by the Standard & Poor’s managed care analyst, Phillip Seligman, HMOs and health plans should continue to reap record profits fueled by premium price hikes in the 15% to 18% range.

Publicly traded HMOs have posted record profits in 2002 and 2003. PacifiCare reported a $37 million dollar profit in the fourth quarter of 2002. The profits of WellPoint, the parent company of Blue Cross, jumped 64% in the fourth quarter of 2002 over the previous year. Recent data from the Department of Managed Health Care (DMHC) shows that 5 state HMOs have $2.2 billion in excess cash reserves. According to the California Medical Association, HMOs and health insurers spent 12-33 cents out of every premium dollar they collected in 2002 on profit, administrative costs, salaries, and advertising.

“Excessive and unfair health care premiums combined with a slowing economy mean more California consumers cannot afford basic coverage,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. “Health insurers should be required to get ‘prior approval‘ for rate increases similar to systems in place for the auto and home insurance.”

Similar “prior approval” standards exist in California for home and auto insurance as a result of the voter approved Proposition 103 and 26 other states require some type of approval process for health insurance rates.

During the decade after Proposition 103 was adopted, auto insurance rates in California went down by 4.0% while the uninsured motorist population declined by 38%. Nationally, rates rose over 25% during this period. California consumers saved over $23 billion since 1988 under the prior approval system


The Foundation for Taxpayer and Consumer Rights (FTCR) is a non-profit and non-partisan consumer advocacy organization. For more information visit us on the web at or

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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