Consumers & Advocates Suffering Double-Digit Rate Increases Call For Affordability Bill
While regulators, under a narrow merger agreement, are investigating illegal profit transfers to Blue Cross‘ parent company, the Senate Health Committee will vote today on a bill providing regulators broader review power for all health insurers. Consumers will challenge members of the Senate Health Committee to put patients before insurer profits.
Assembly Member Jones’ measure, AB 1554, is especially important because proposals by Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Nunez would either require all Californians, or workers whose employers provide coverage through a state pool, to buy health insurance but allow health insurers to charge whatever they choose. Nunez’s bill, AB 8, will also be voted on by the Senate committee today.
AB 1554 is similar to requirements in the auto insurance market that have saved drivers $23 billion since 1988. The measure would control the type of administrative waste and profiteering that allowed Blue Cross of California to keep, as overhead and profit, 50% of every premium dollar collected from individual policyholders.
Laurel Kaufer, a self-employed single mother of two teen-aged boys, has struggled to balance health care costs with the need to seek care. Kaufer’s current plan with Blue Cross has a $3,000 family deductible and $12,000 out of pocket family maximum, and a minimum of a 30% co-pay. The premium for this bare-bones plan is $671 a month, up 340% since 2001 — 30% in just 18 months.
“No one should be put in the position of having to consider these factors when faced with a potential emergency or oncoming illness, doing a juggling act with their or their children’s health, yet that seems to be exactly what insurance companies want us to do, all for the sake of their bottom line,” said Kaufer.
According to the National Association of Insurance Commissioners:
– California auto insurance premiums have declined by 7% since voters approved Proposition 103 in 1988, while rates nationally have increased 47%.
– In the fifteen years following the passage of Proposition 103, California went from 2nd most expensive state for auto liability premiums in the country to 21st.
– Californians, who paid 52% more in 1989, paid less than the national average for auto insurance in 2004.
Just five California HMOs (Kaiser, Blue Shield, Blue Cross, PacifiCare, and HealthNet), who control 80% of the HMO market, have recorded profit increases of $11.7 billion since 2002. 4 of the companies transferred $3.2 billion in profit to out-of-state parent companies since 2002. The 6 largest HMOs spent $1.6 billion in marketing in 2006.
The proposed legislation, AB 1554, would require insurers to justify overhead costs and excessive profits before raising rates. Proposed rate increases would be denied if they were deemed excessive or unfair. Rates would not be set by the state, but the transparent process of public review would assure that increases are justified.
“This bill should be passed before the Legislature even contemplates requiring Californians to buy health insurance,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “While HMOs and health insurers have racked up record profits and wasted billions on overhead, millions of Californians have been forced into bare-bones coverage that offers little protection when they get sick, or have dropped coverage altogether.”
FTCR said the reform is necessary regardless of whether proposals requiring Californians to purchase health coverage become law. HMO and health insurance overhead — including administration, profit, advertising, and executive salaries — is the fastest-growing component of health care spending (see attached fact sheet).
Proposition 103, authored by consumer activist Harvey Rosenfield, founder of the Foundation for Taxpayer and Consumer Rights, and approved by voters in 1988, established a similar “prior approval” system for many lines of insurance. During the decade after Proposition 103 was adopted, the uninsured motorist population declined by 38%.
Between 1989 to 2004 California auto insurance premiums decreased 7% while premiums in the rest of the country increased 47%. Since just 2003, the rate challenges of one consumer group, the Foundation for Taxpayer and Consumer Rights, have saved homeowners, motorists and doctors $800.95 million in premiums (see attached chart below).
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Profit
According to Weiss Ratings, between 2001 & 2005, HMOs and health insurers nationally have increased their profits by 170%. California HMOs and health insurers have also transferred a significant amount of their profits to out of state parent companies rather than use these excess profits to reduce rates:
– Blue Cross of California has transferred $1.9 billion in profit to its out-of-state parent company, WellPoint, since 2002* (1).
– PacifiCare has transferred $485.3 million.
– Health Net has transferred $534 million.
– Aetna has transferred $255 million.
In total, just 4 companies regulated by the Department of Managed Health Care (DMHC) have transferred $3.2 billion in profit out-of-state since 2002 ‘ enough money to provide full coverage to 1 million Californians for an entire year.
Overhead & Administrative Costs
– The 6 largest DMHC regulated health plans spent $1.6 billion on marketing in 2006 — enough money to provide full coverage to 530,000 Californians for an entire year.
– The 6 largest DMHC regulated health plans spent at least $1.16 billion on salaries in 2006 — enough money to provide full coverage to 386,000 Californians for an entire year.
– In addition to salaries, top executives were awarded lavish bonuses. For example, former Blue Cross of California CEO, Leonard Schaeffer received $250 million in cash and stock following WellPoint‘s merger with Anthem Inc.
Reserves
Health plans have amassed reserves far in excess of state requirements designed to protect patients if the company becomes insolvent. These huge reserves are funded by excessive premiums.
– Kaiser has $9.3 billion in excess reserves, an increase of $8.8 billion since 2002, which is 1026% of the state required minimum.
– Blue Shield has $1.8 billion in excess reserves, an increase of $1.3 billion since 2002, which is 699% of the state required minimum.
– Blue Cross has $1.7 billion in excess reserves, an increase of $1 billion since 2002, which is 548% of the state required minimum.
– PacifiCare has $504 million in excess reserves, an increase of $330 million since 2002, which is 527% of the state required minimum.
– HealthNet has $572 million in excess reserves, an increase of $264 million since 2002, which is 368% of the state required minimum.
Since 2002, the 6 largest DMHC regulated health plans have earned $1.6 billion in investment income on premium payments but have continued to impose double-digit rate increases on consumers.
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(1) All profit and overhead figures were reported by the companies in their annual filings to the Department of Managed Health Care — figures do not include dividends paid by DOI regulated companies.
FTCR is California’s leading public interest watchdog. For more information, visit us on the web at: www.ConsumerWatchdog.org
