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Associated Press

Proposal to bar excessive HMO rates fails in Senate committee

by STEVE LAWRENCE, Associated Press Writer
May 5, 2004

SACRAMENTO -- Legislation to give the insurance commissioner the power to limit HMO rates
ran into a roadblock Wednesday in the Senate Insurance Committee after two Democrats refused to support the measure.

The panel ended up approving a watered down version of the bill that would put a fee on health plans to pay for a commission that would look for ways to cut health care costs.

The bill, sponsored by Sen. Debra Ortiz, D-Sacramento, originally would have required health maintenance organizations to seek approval from the commissioner to adjust their rates, much like the law that requires state approval to change auto insurance prices.

It would have barred the commissioner from approving health coverage rates that were excessive, inadequate or "unfairly discriminatory."

Jerry Flannigan, a lobbyist for the Foundation for Taxpayer and Consumer Rights, said the bill would have helped control one of the biggest factors in rising health care costs: administrative overhead.

"The market is uncompetitive and therefore we need someone to deny rates that are excessive, to go in there and look at the books and look at the numbers," he said.

But health industry lobbyists argued that health insurance rates are relatively low in California and that state regulation would add unnecessary costs.

"We are a very low-profit industry," said Bob Scarlett, a lobbyist for Blue Cross. "It's just a fact, no matter how many misstatements that some of the (bill's) supporters have made."

Bill Wehrle, a lobbyist for the California Association of Health Plans, said the industry's profit margin last year was 2.96 percent. "I can't think of another industry that has to defend a profit of 2.96 percent," he said.

But Ortiz said the state needed rate regulation to question HMO expenditures.

"We need to ask the questions," she said. "Are CEO bonuses appropriate? Are unlimited expansions of hospitals appropriate. ... The bottom line is they need to disclose all of the costs they believe are permissible expenditures."

But two key Democrats on the nine-member committee, chairwoman Jackie Speier, D-Daly City, and Sen. Jack Scott, D-Altadena, refused to support state rate regulation.

Speier said she was troubled by big increases in health costs but added that Ortiz was proposing a "huge step. It is a step that I don't think there is evidence to support at this time," she said.

Scott also said he didn't feel "comfortable making such a sweeping change."
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On the Net: Read the bill, SB1349, at www.senate.ca.gov