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News Coverage
Associated Press
Plan to require state approval for increases in trouble
by Steve Lawrence
May 13, 2003
Buffeted by heavy lobbying by the health care industry, legislation that would require state approval to raise health insurance rates is struggling to pass its first test in the Senate.
The measure by Sen. Liz Figueroa, D-Sunol, is at least one vote short of passing the Senate Insurance Committee with time running out. The deadline for bills to pass their first house is June 6 and Figueroa's legislation must clear two committees and the full Senate before then.
"We are still looking to get votes," says Liz Fenton, an aide to Figueroa.
Consumer activists pushing the bill say that if it dies they'll try to collect enough voter signatures to put a broader health cost-control measure on the November 2004 ballot.
Figueroa's bill is modeled after provisions of Proposition 103, a 1988 ballot measure that requires approval from the state insurance commissioner to change rates for auto insurance and other types of property-casualty coverage.
Consumer advocates credit Proposition 103's prior approval requirements for keeping California's auto insurance rates under control and say it can do the same thing for health insurance.
"It's impossible to open the business pages these days and not find health insurance CEOs bragging about the profits they're making," says Jerry Flannigan, a health care advocate for the Foundation for Taxpayer and Consumer Rights. "If these rates are fair, then the plans would have nothing to fear about the bill."
But Michael Chee, a spokesman for Blue Cross of California, the state's largest health insurer, says his company only makes about four cents in profit for every dollar paid in premiums, although profits for its HMO arm are higher.
The company really makes money by adding new patients, he says.
"We've added more than 600,000 to our enrollment nationwide. In California, we've added several hundred thousand more. Those big volume numbers, that's what account for profitability in terms of overall numbers."
Requiring state approval for rate increases could put insurers at risk of insolvency or force them to pad their increase requests to keep up with rising health care costs brought on by such things as hospital costs, new technology and the aging of the population, Chee says.
"The theory behind the bill is if you cap the rates, you control costs. That's fundamentally untrue. Costs will continue to rise in health care. They have never gone down. They have always gone up."
The cost of health insurance grew by an average 13 percent last year in California, slightly more than the national average, according to an employers' survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust.
But premiums were about 8 percent lower in California, partly because of the higher enrollment of California workers in lower cost health maintenance organizations.
Flannigan said rate increases for small businesses and individuals who insure themselves were in the 20 percent to 40 percent range.
"This bill is really designed for the self-employed people, small business employers and retirees who don't have health benefits," he said. "They don't have the same huge market leverage that really large employers do."
Insurance Commissioner John Garamendi supports the bill, although he says he would need more money to enforce its provisions.
Nanci Kramer, a spokeswoman for Garamendi's Insurance Department, says the prior approval requirements of Proposition 103 have "worked well," although they don't necessarily prevent rate increases.
"It means we keep rates honest," she says. "It doesn't mean that it keeps rates low."
The Insurance Committee chairwoman, Sen. Jackie Speier, D-Daly City, says she likes the bill, although there are parts of it that she considers "problematic," including language that would allow consumer advocates to collect intervener fees for playing a significant role in the rate-setting process.
"I think that's all about creating an opportunity for them to make money over the next five to 10 years," she says.
But Kramer says consumer advocates play "an important part" in rate reviews. "They do an awful lot of work in keeping up on what the insurance companies are doing."
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