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by Marie Suszynski, Associate Editor
Apr 11, 2003

SACRAMENTO, Calif. (BestWire) - Citing what they called "excessive and unfair health-care premiums" and high rates of uninsureds, consumer advocates are sponsoring a bill in the California Senate that would place health insurers into a prior-rate approval system. Modeled after Proposition 103, which established a prior-approval system for auto insurers, Senate Bill 26 is being sponsored by the Foundation for Taxpayer and Consumer Rights and AARP, the organizations said in a statement.

"The only thing that the free market has done for health care is given health insurers the freedom to raise rates beyond the reach of average consumers," Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights, said in the statement.

Sen. Liz Figueroa, D-Fremont, Senate President John L. Burton, D-San Francisco, and Assemblyman John Laird, D-Santa Cruz, introduced the bill in the Senate April 8. The bill would give the Department of Managed Health Care or the Department of Insurance the power to deny premium rate increases if they decide they're "excessive or unfair."

However, there's a provision that's buried in the bill that would allow the foundation and other consumer groups to "intervene" in rate-review proceedings, said Bobby Pena, spokesman for the California Association of Health Plans. The foundation has made millions of dollars acting as interveners with Prop 103, he said, adding that the provision allows the group to request hearings and bring legal issues on behalf of health plan members and require to be paid for it. Prop 103 is the 1988 California ballot initiative that limited insurers' rates of return and imposed sweeping rate rollbacks (BestWire, March 1, 1993). But the foundation said the issue is rising premiums for consumers and small businesses. Small employers, which make up almost 98% of all businesses in California and employ more than 50% of the state's work force, saw an increase in premiums of about 20% in 2002, the foundation said. The 1.5 million self-employed Californians and millions of pre-Medicare retirees without health-care retirement benefits are being hit the hardest by rising premiums, the foundation said. In addition, there are 6.2 million uninsured people in California who represent over 20% of the state's population under the age of 65.

The foundation blamed "inefficient" health plans, which they said spend 12 to 33 cents of every premium dollar they collect on administration, salaries and advertising. The foundation also criticized the health plans for raising premiums while collecting profits, citing $37 million in fourth-quarter 2002 profits reported by PacifiCare and a 64% increase in WellPoint's profits in the fourth quarter of 2002. Data from the Department of Managed Health Care said five state HMOs have $2.2 billion in excess cash reserves, the foundation said.

"HMOs and health plans claim that skyrocketing premiums are the result of increasing medical costs," the foundation said in the statement. "However, in 2002, the cost of health insurance for a family of four increased 250% more than the rate of medical inflation...Premiums are expected to continue to outpace medical-cost inflation in 2003."

Although the numbers the foundation is citing are correct, they're not telling the whole story, Pena said. "They're cherry picking a couple of numbers without giving details." For instance, profits may have gone up, but regulators report the average profit margin for insurers is 1.8%, he said. "Wall Street doesn't jump up and down about a company with a 1.8% profit margin," he said, noting that grocery stores have a profit margin of about 6% or 7%. "The reality is that health plans have been instrumental in keeping costs down in California and keeping plans accessible for most people," Pena said. He noted that the foundation didn't offer solutions to skyrocketing pharmaceutical costs, higher rates for hospitals and physicians and the aging population that's utilizing more services. "They've said nothing about the pharmaceutical companies' profit margins," he said.

Although the foundation said Prop 103, which it helped establish, has helped auto rates in the state decline by 4% while the number of uninsured motorists has plunged 38%, you can't compare auto and health insurance, Pena said. "Auto repair people aren't coming up with new inventions and new ways to service your car the way pharmaceutical companies are coming up with new medications," he said. Top health insurers in California include Kaiser Permanente, WellPoint's Blue Cross of California, Health Net Inc. and PacifiCare Health Systems, Pena said.
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