Watching The Health Insurers

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Opponents of a bill that would allow state regulators to reject unreasonable increases in health insurance premiums are stepping up their attacks on the measure, contending that it would push premiums even higher and make healthcare less available. These arguments are a smokescreen, and lawmakers shouldn't lose sight of the need to give consumers of health insurance the same protection they have in auto and homeowners' policies.

One allegation is that the bill — AB 52, sponsored by Rep. Mike Feuer (D-Los Angeles) — would enrich the consumer advocates who challenge proposed rate increases. That charge is based on the bill's requirement that insurers cover the "reasonable" fees and costs incurred by advocates who make a "substantial contribution" to the ruling by regulators or the courts. The same perfectly sensible language is in Proposition 103, the initiative that empowered state regulators to reject excessive automobile, property and casualty insurance rates.

Giving consumers the opportunity to participate in rate reviews is a valuable counterweight to the shifting policies in Sacramento, where regulators' zeal often depends on who won the last election. And the "substantial contribution" requirement for getting fees reimbursed deters frivolous challenges. Consumer Watchdog, an advocacy group, says its interventions have reduced insurers' proposed auto, home and earthquake premiums by more than $2 billion since 2000; insurers have had to spend an additional $5 million to cover the consumer group's expenses.

Smaller premium increases might seem like a good thing to consumers, but doctors and hospitals evidently feel differently. Their trade associations are opposing AB 52, arguing it could artificially reduce the rates insurers pay them. Such reductions, they say, could persuade more providers not to take Medicare and Medi-Cal patients because they count on reimbursements from private insurers to cover some of the cost of government-insured patients. But those cross-subsidies are precisely the sort of distortions and inefficiencies that policymakers should be trying to eliminate from the healthcare system, not prop up.

The healthcare reform law Congress passed last year tries to combat cross-subsidies, and it limits insurers' profit margins by tying them to the amount spent on medical care. That link, however, gives insurers a perverse incentive to grow their profits by inflating the amounts they pay doctors and hospitals. That's a good reason to give state regulators the power not just to review rates, as California law now provides, but to reject them when they're unreasonable. Here's another: As of 2014, the healthcare reform law will require
all adult Americans to obtain health coverage. Regulators ought to have the power to stop insurers from gouging that captive market.

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