News CoverageThe San Diego Union-Tribune
Bill seeks state say in HMO rate increases
by by Bill Ainsworth, Copley News Service
Apr 08, 2003
SACRAMENTO: The state's most powerful legislator is backing a proposal aimed at making health insurance more affordable without costing the cash-strapped state any money. The plan would require state approval of HMO rates for the first time.
Legislation to prohibit "unfair and excessive" premium increases, being introduced today by state Sen. Liz Figueroa, D-Fremont, has won the support of State Senate President Pro Tempore John Burton, D-San Francisco.
But the legislation, SB 26, faces strong opposition from health plans that argue it will drive health maintenance organizations out of the market, reduce competition and possibly increase health insurance premiums in the long run.
The bill is modeled after rate regulation that already occurs in automobile and home insurance as a result of Proposition 103, a ballot measure passed in 1988. Currently, insurers must submit proposed rate hikes to the state insurance commissioner, who then decides whether the new premiums are justified.
This bill would require health plans to submit proposed increases in rates, co-payments or co-insurance obligations to either the Department of Insurance or the Department of Managed Health Care.
Backers of the legislation believe that requiring government approval of health premiums will force insurers to curb high profits and cut prices.
They cite three years of double-digit increases in the premiums charged to businesses with fewer than 50 employees and soaring HMO profits to justify their plan. WellPoint Health Networks, the parent company of Blue Cross, showed an increase in profits of 64 percent in the fourth quarter of 2002 over the previous year.
"We hope that it would bring down rates," said Figueroa. "We're talking about making health care more affordable."
The legislator believes that her bill will help reduce the ranks of the uninsured, who number 7 million in California, including 2 million children.
Unlike other bills aimed at that problem, including a universal coverage plan and a fee on employers who don't offer health insurance, this one wouldn't have significant new costs, said Figueroa.
HMO representatives dispute that.
"It won't work because it doesn't get at the things that drive health care costs up - an aging population, new technology and increased utilization," said Bill Wehrle, vice president of the California Association of Health Plans.
Wehrle said the main reasons costs are increasing is that more people are using better and more expensive new treatments.
Profits in the HMO industry are low, amounting to about 1.5 percent of revenues, he said, because competition in the marketplace is fierce. Already, Wehrle said, HMOs have to justify their rates to customers in the private sector.
"The question is whether you think that state government can do a better job of containing costs than the private sector," he said.
Supporters of the legislation say 26 states offer some health rate regulation, including 10 that require full regulation.
Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights, a consumer group that is backing the bill, said that soaring health insurance costs represent a new "middle-class crisis."
"More California consumers and businesses cannot afford basic coverage," he said.
Gov. Gray Davis hasn't yet taken a position on the bill, said his spokeswoman, Hilary McLean.