‘Strike 1’ on Health Care Cost Controls, Consumer Group Says

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FTCR pledges ballot initiative if two other cost control policies fail

The California legislature failed to support legislation yesterday to require health insurers to justify their premium increases to the Insurance Commissioner before raising rates, one of three policy changes needed to rein in out-of-control health care cost increases according to the Foundation for Taxpayer and Consumer Rights (FTCR). Consumer advocates pledged to develop a ballot initiative if the legislature failed to act on two other cost control policies.

“That’s ‘strike 1’ to the legislature on health care cost controls. If politicians strike-out on prescription drug bulk purchasing and hospital stabilization then we will let the voters decide at the ballot,” said Jerry Flanagan of FTCR. March 2006 is the next opportunity that new initiatives may be presented to statewide voters for approval.

The proposal rejected by the Senate Insurance Committee would have required HMOs to submit an application for rate increases to the Insurance Commissioner. Rates deemed excessive, inadequate, or unfair would be denied. Similar standards have existed for auto insurance since voters enacted Prop 103 in 1988, which has saved motorist more then $23 billion. The legislation, SB 1349, was gutted in the committee and amended to fund a study of cost controls.

Huge health care costs increases have led to record numbers of uninsured and underinsured Californians. HMOs, whose profits surged 73% in the second quarter of 2003 according to Weiss Ratings, have spent $1 million in the first 90 days of 2004 lobbying the state legislature and governor’s office.

Flanagan outlined two other cost control proposals for which FTCR found wide support during a two year town hall process: prescription drug bulk purchasing and standardization of hospital rates. Assembly Majority Leader Frommer’s (D- Los Angeles) legislation, AB 1958, provides for bulk purchasing of prescription drugs, and several bills provide more public control of hospital rates.

In testimony to the Senate Committee on Wednesday evening, Flanagan, referring to a 2003 California law (SB 2) requiring employers to provide health care coverage beginning in 2006, told Senators that, “Now that the legislature has required businesses to buy health care, you have the responsibility to make it affordable.”

According to government data, health insurance overhead and administrative costs (overhead, profit, executive salaries, surplus, reserves) increased by 16.4 percent in 2002, after a 12.5 percent increase in 2001, making it the fastest growing component of health care spending over the past three years. California health insurers spend up to 25 cents out of every premium dollar they collect on administration, overhead, advertising and executive salaries.

In a new report documenting a two-year town hall consensus building process, Crisis and Opportunity: Forging a Universal Health Care Consensus, FTCR announced 3 model cost-control laws and a model ballot initiative. The model laws, based on the consensus developed in the town hall process, are designed to address the immediate affordability crisis: prescription drug bulk purchasing, health insurer premium regulation, and hospital market stabilization. The model ballot initiative will be further refined and developed over the next year. The report may be downloaded at


The Foundation for Taxpayer and Consumer Rights is a non-profit and non-partisan consumer 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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