California bill urges more control over health insurance plans

Most insurers need governmental approval for rate-setting. A state legislator thinks health plans should as well.

By Robert Kazel, amednews staff. May 19, 2003.

Arguing that there is no reason auto insurance rates should be regulated while health insurance premiums aren't, a state legislator in California has introduced a bill that would require health plans to get state approval before increasing rates, deductibles or co-payments.

Senate Bill 26, which warns that health insurance rates are soaring and businesses are increasingly deciding to drop employee coverage, is the first of its kind aiming to give a state veto power over all changes in health insurance charges, said Sen. Liz Figueroa, a Silicon Valley Democrat and chief backer of the measure.

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The bill would require HMOs that want to change rates to first get agreement from the Dept. of Managed Health Care; PPOs would need an OK from the Dept. of Insurance. It also would force payers to make refunds to plan members if the state deems any rate increases enacted after the year 2000 were excessive. The criteria for deciding which changes were unwarranted are not yet written.

California businesses with 50 or fewer workers had premium increases of about 20% both last year and in 2001 and about 17% in 2000, according to the bill. The rates have been skyrocketing at the same time that health plans in the state generally have been enjoying hefty profits and maintaining unusually high levels of reserve funds, Figueroa said.

"We know they have massive cash reserves of $2.2 billion [collectively] above the levels established by the Dept. of Managed Care," she said.

The bill is intended to help make insurance more affordable, both to assist workers and so more of the state's children can be covered, the senator said. Two million children in California lack health insurance, a situation Figueroa called "absolutely immoral."

2 million children in California lack health insurance.

In setting forth a case for the new regulation, the text of the bill draws a direct parallel between auto insurance and health insurance rates, and argues that stricter regulation of auto coverage has produced great benefits for consumers. For 15 years, automobile insurance companies in California have had to justify rate increase proposals to a state agency and get its approval. According to the bill, state auto insurance law policies have helped to significantly decrease car insurance premiums and the number of uninsured motorists.

The Foundation for Taxpayer and Consumer Rights, the same organization that was the main proponent of Proposition 103, the 1988 state initiative that tightened the state's reins on auto insurers, is spearheading the new health insurance bill.

Figueroa acknowledges that the bill is an uncommonly strong attempt to regulate health plans. Although 26 states require health plans to publicly disclose the justification for rate increases before enacting them, passage of the bill would make California the first state to give itself actual veto power over rate increases.

The bill is intended to complement legislation submitted to California lawmakers this year that would institute a statewide universal health care system by requiring companies to offer employee health insurance and requiring individuals not covered by group plans to buy individual coverage. But Figueroa said she will pursue passage of the rate approval bill regardless of the fate of universal coverage legislation.

HMOs are likely to mount a fierce fight against the bill. The bill is misguided, said Bill Wehrle, vice president for legislative affairs of the California Assn. of Health Plans. Premium ceilings would lead insurers to make up for lost income in other ways, including stopping coverage of some prescription drugs or shrinking hospital and physician networks.

It is also foolhardy to allow the state to decline rate hikes, he said, because it ignores the roots of upwardly spiraling medical costs: the aging population, costly medical innovations and new drugs, and higher hospital and doctor reimbursement rates.

Peter Warren, spokesman for the California Medical Assn., said the society was still studying the legislation and had not yet taken a position.