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Contra Costa Times

Bill may lower health care costs

State to consider legislation that would give it the power to restrict rate increases by health insurers

Apr 08, 2003

Aiming to halt the yearly hikes in health care premiums that are straining employers and individuals, California legislators will introduce today a bill to dramatically change the way rates are set by giving state regulators the power to veto excessive increases.

Modeled after Proposition 103 for car and homeowners insurance, the bill, SB26, will allow regulators to judge whether proposed increases are justified. It will require health insurers to obtain permission before they raise premiums, co-payments, deductibles and co-insurance rates, drastically limiting their autonomy.

"If Proposition 103 is a model, we'll see a decrease in health care premiums under this bill," predicted Jerry Flanagan, a health care advocate with the Foundation for Taxpayer and Consumer Rights. "There's no doubt about it."

Since Proposition 103 was adopted by California's voters in 1988, California's car and homeowners insurance rates have come down and are now among the lowest in the country, he said.

Health insurers argue that such a bill could have a devastating impact on the industry. Profit margins are already low. Limiting rate increases set to cover steeply rising health care costs could place health plans in financial jeopardy, they said. In the past year, several health plans have gone out of business.

"I think the real danger of a law like this is that there's always a temptation to decree that the rates must be lower," said Bill Wehrle, vice president for legislative affairs for the California Association of Health Plans. "When you artificially set rates, there are consequences that none of us will like."

Flanagan disagreed. Over the past few years, businesses and consumers have had to absorb double-digit increases in health insurance premiums while insurance company profits have swelled, he said. Premiums paid by large employers for a family of four rose by 12.5 percent in 2002 and by 10.2 percent in 2001, according to research from the nonprofit Kaiser Family Foundation and the Health Research and Education Trust.

Small businesses have taken the hardest hit, with increases that range from 15 percent to more than 20 percent. Most employees have also seen their health care contributions go up as employers have shifted costs to them in an effort to control expenses.

Meanwhile, some health plans have seen profits soar, Flanagan said. PacifiCare reported a $36 million profit in the fourth quarter of 2002, a 37 percent increase over the previous year. WellPoint, the parent company of Blue Cross, saw profits jump 64 percent in the fourth quarter of 2002 over the same period in 2001.

"The premium increases are far above what's required to control costs," said Sen. Liz Figueroa, D-Fremont, a sponsor of the bill. "There's no reason to make that kind of profit when we know there are 7 million uninsured in California. It's totally unacceptable." SB26, which also has the backing of Senate President John Burton, D-San Francisco, and Assemblyman John Laird, D-Santa Cruz, will help keep the rate increases in check and could even lower rates, she said.

The bill would require that the Department of Managed Health Care, which regulates the state's HMOs, and the Department of Insurance, which regulates PPOs, approve all rates retrospectively from April 1, 2000.

But Michael Chee, a spokesman for Blue Cross of California, said the arguments for regulation are misleading. First of all, WellPoint's profits represent operations across the country, not just Blue Cross of California's health insurance business, he said. Secondly, reported profit increases came from increases in membership and acquisitions of other health insurers, not from premium increases. Further, Blue Cross of California's profit margins remained consistent at 4 percent for the past five years, he said.

Premiums have gone up, not because of excessive greed on the part of insurers, but to keep up with rising health care costs, Chee said. Consumer demand for health care services has gone up. Health care spending rose by 10 percent in 2001, with spending for inpatient hospital services rising by 7.1 percent per capita, outpatient services by 16.3 percent, and pharmaceutical
costs by 13.8 percent.

"Health care costs are not predictable," Chee said. "If we're not allowed to adjust those rates as is necessary, it could jeopardize the financial stability of the whole system."
Judy Silber covers biotechnology and the business of health care. Reach her at 925-977-8507 or [email protected]