Prop 103-Style Regulations of Health Industry Needed To Combat Insurer-Doctor-Hospital Price Gouging, Consumer Group Says

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Santa Monica, CA — As health insurers, hospitals, and doctors join up today in a lobbying effort to ensure there are no controls on how much they can charge, a consumer group called on legislative leaders to champion Prop 103-style regulation for the health care industry to guarantee that patients can afford health insurance coverage. Prop 103 requires that property and casualty insurers justify their premiums to the state, but no such law currently applies to HMO and health insurers. 

In the letter to Assembly Speaker Núñez and Senate Pro Tem Perata, the Foundation for Taxpayer and Consumer Rights (FTCR) wrote:

“Your intent to cover all or almost all of the uninsured without raising overall health spending is admirable. Yet unless your aim of controlling health care costs extends to curbing the waste, fragmentation and profit demands of the private insurance and HMO system, universal health care will remain unaffordable — for the state, for employers and for individuals. The state’s insurers and HMOs, who have actively undercut Californians’ access to health care, will be least willing to share responsibility for change…

“Any universal reform that includes private insurers must require them to justify current rates and proposed premium changes. California needs an effective regulatory review like that required of auto and property/casualty insurers under Proposition 103, which forces them to justify their premiums. As you know, State Farm, Farmers and Safeco agreed to reduce homeowner rates by $478 million in the last few weeks alone. A robust regulatory review can just as easily follow the health care money trail and ensure that premiums are not excessive.”

Download the letter here.

FTCR noted that a proposal in Governor Schwarzenegger’s health care plan to cap health insurer overhead costs at 15% is insufficient to ensure that rates are affordable and will likely lead to health care inflation.  In the letter FTCR wrote:

“Requiring that 85% of premium revenue go to health care will, in the absence of rate review and approval, perversely encourage insurance companies and HMOs to overpay doctors and hospitals, and buy up medical practices in order to reap more income within the percentage allowed.”

FTCR explained that the two models for Governor Schwarzenegger’s health care reform — Massachusetts’ recent reforms and California’s workers compensation overhaul — have had big problems.  Massachusetts has been unable to establish an affordable policy for residents to buy under the mandatory insurance laws. Governor Schwarzenegger’s workers compensation overhaul has prevented injured workers from receiving much needed benefits. 

“Workers comp is the perfect example of “shared responsibility” being borne only by working people who lack political clout,” FTCR’s  Jamie Court, Jerry Flanagan and Judy Dugan wrote. “You will face intense pressures from the same groups that profited through turning the state’s back on the most seriously injured workers: the corporate groups and insurance companies that pay California’s lobbyists and finance elected officials’ campaigns. For that reason, requiring insurers to insure all comers, price health plans by community — and submit their rates for prior approval with review of overhead and profit — must be the first steps to universal health care.

“Otherwise, your proposals’ good intentions and high motives will be undercut by out of control health care inflation and pressures to continually reduce the quality of “basic” insurance. Even small steps, like covering all children, will cost the state more than it can afford. Universal coverage will again be a pipe dream.”

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FTCR is California’s leading public interest advocacy group.  For more information visit us on the web at:

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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