Health Insurance Premium Increases Regulation Passes Committee

by Frank D. Russo, California Progress Report

Yesterday evening, the Assembly Health Committee on a 10-5 vote passed
AB 1554 by Assemblymember Dave Jones regulating health insurance
premiums. The bill requires that prior approval be obtained before
health insurance rates can be increased. According to the author, this
is the first time that legislation on this topic has passed a
California legislative committee.

Voting for the bill were Assemblymembers Karen Bass, Patty
Berg, Hector De La Torre, Kevin de Leon, Loni Hancock, Mary Hayashi, Ed
Hernandez, Dave Jones, Sally Lieber, and Fiona Ma, all Democrats. Those
voting against the measure were Assemblymembers Alan Nakanishi, Bill
Emmerson, Ted Gaines, Bob Huff and Audra Strickland, all Republicans.
Not voting were Democratic Assemblymembers Mary Salas and Mervyn

Rates requiring approval include premiums, co-payments, coinsurance
obligations and deductibles. HMOs and health insurers would need to
receive approval from the California Department of Managed Health Care
(DMHC) or the Department of Insurance (DOI) for increases.

Proposed rate increases would be denied if they were deemed
excessive or unfair. Any proposed rate that is not challenged by a
consumer within 45 days of it being posted on the Department website
and not acted on by the Department on its own discretion within 60 days
would be deemed approved. This rate regulation would begin January 1,

‘Californians face skyrocketing health insurance premiums.
Increasingly, Californians cannot purchase health insurance because it
is unaffordable. This measure will require health insurers to justify
their premium increases and seek approval for their rates. I look
forward to working with my colleagues in the Legislature to ensure that
this proposal becomes part of the health care reform package that is
sent to the Governor,’ explained Assemblymember Jones.

Jones emphasized that this bill is critically important to
Californians, especially as the legislature considers health care
reform proposals by the legislative leadership and the Governor. More
than 6.5 million Californians are uninsured, while others are

Polls show that the majority of people with health insurance fear that
ongoing premium increases will cost them their health insurance
coverage. Health insurance premium increases are soaring far above the
rate increases for wages and inflation. According to the Kaiser Family
Foundation, health insurance premiums for employer-sponsored policies
have increased by an average of 87% over the last six years. That far
surpasses the 20% rise in wages and the 18% rise in overall inflation
during that time period.

The legislation is similar to requirements in the auto insurance market
under Proposition 103 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

Jerry Flanagan, the Health Care Advocate for the Foundation for
Taxpayer and Consumer Rights (FTCR), hailed the committee’s approval of
AB 1554. He said: ‘The legislature has taken an important first step to
provide health care affordability for Californians by reining in waste
and profiteering."

In addition, Flanagan said that AB 1554 would provide the
public more information about where health care dollars are spent. For
example, California’s most profitable insurer, Blue Cross, reported
$1.3 billion paid to a subsidiary company for ‘claims processing’ as a
medical expense. FTCR said that such transfers most be scrutinized to
determine that companies are not claiming unjustified medical expenses,
or overpaying affiliated companies for services as a strategy to move
profit out of California.

He compared Jones’ bill to Proposition 103, authored by
consumer activist Harvey Rosenfield, founder of FTCR, and approved by
voters in 1988, which 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 and 2004, California auto insurance premiums decreased 7% while
premiums in the rest of the country increased 47%.

He said that since just 2003, the Foundation for Taxpayer and Consumer
Rights has saved homeowners, motorists and doctors $800.95 million in
premiums under Proposition 103 by challenging proposed rate increases.
A similar process for challenging rate increases would be provided for
health rates under the Jones bill.

Mark Leland, a small business owner from Santa Monica, endured
a 264% increase in his health insurance rates in the last five years,
including a 69% increase when he turned 40 and another 15% increase
this year.

‘To find out where my 69% premium rate hike went, I looked into the
financials of the Big 5 HMO’s in California and I found something the
public should be aware of: administrative expenses increased 23% this
year. But enrollment in these HMO’s is declining, so how can you have
these yearly 23% administrative cost increases’? asked Leland.

Steve Blackledge, legislative director CalPIRG, the California Public
Interest Research Group, said: We’re pleased with those who stood up to
the insurance industry and their lobbyists and voted for the bill. And
since the bill is still alive, we’ll have new opportunities to persuade
those who aren’t yet on board that the policy is a strong and needed

AB 1554 is supported by individuals who have been the victim of
dramatic health insurance rate increases and organizations such as
California Public Interest Research Group (CALPIRG), Consumer Federation of California,
Foundation for Taxpayer and Consumer Rights, California Federation of
Teachers, California State Employees Association (CSEA) and Gray
Panthers California.