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May 05, 2003

CONTACT: Jerry Flanagan, (415) 633-1320

HMOs Serving Low-Income Populations Report Profit Surge

SB 26 Would Require 'Prior Approval' of Rates

Two state HMOs that serve the state's low-income populations and other health insurers are reporting dramatic profit increases. New state legislation, SB 26, would require health insurers to get state approval before raising premiums, co-pays, or deductibles. The bill, SB 26, has been held up in the Senate Insurance Committee as a result of heavy opposition from state health insurers.

"It is outrageous that health insurers are reporting huge profit increases while they use their political clout to oppose legislation that would require state oversight of rates," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). "Unfair and excessive health insurance rates are driving many consumers and small business owners out of the health care market."

In addition to record profits, state health insurers are reporting growing administrative and overhead costs. SB 26, authored by Senator Figueroa (D-Fremont), Senate President Burton (D-San Francisco), and Assembly Member Laird (D-Santa Cruz) would allow state regulators to deny rates that are deemed unfair or excessive. The bill is co-sponsored by FTCR and AARP.

* Molina Healthcare, Inc., serving state sponsored Medicaid enrollees, saw earnings rise to $30.5 million nationally in 2002 up 115% from 1998 levels. Molina is preparing to go public with a $115 million stock offering (LA Times, 5/4/03). In 2002, 10.5% of the premiums that Molina collected in California went to profit and an additional 9.3% went to administrative costs and overhead. (California Medical Association).

* PacifiCare Health Systems Inc., a large operator of Medicare health plans, reported that 1st quarter 2003 profits outpaced expected results: $1.90 per share -- more than twice projected levels (LA Times, 4/17/03). PacifiCare reported a $37 million dollar profit in the fourth quarter of 2002.

* Cigna Corporation reported a net income of $236 million for the 1st quarter of 2003 -- up from $218 million for the same period in 2002. Cigna's revenue increased $100 million during the same period (NY Times, 5/3/03).

* The profits of WellPoint, the parent company of Blue Cross, jumped 64% in the fourth quarter of 2002 over the same period in 2001.

* Recent data from the Department of Managed Health Care (DMHC) shows that 5 state HMOs have $2.2 billion in excess cash reserves.

"Without proper oversight, California employers will drop coverage altogether or purchase plans that employees cannot afford. Either way, the ranks of the uninsured will grow, and the State will pick up the tab," said Flanagan.

SB 26 requires HMOs and health insurers to get approval from the Department of Managed Health Care or the Department of Insurance before raising premiums, co-pays and deductibles. Proposed rate increases may be denied if they are deemed excessive or unfair. The standards used for such approval are similar to those used for auto and home insurance for over a decade in California. The landmark auto insurance reform initiative, Proposition 103, championed by FTCR's Harvey Rosenfield in 1988 established a 'prior approval' system for many lines of insurance. During the decade after Proposition was adopted, auto insurance rates in California went down by 4.0% while insurance products remain broadly available and competitive, and the uninsured motorist population declined by 38%. Nationally, rates rose over 25% during this period. California consumers saved over $23 billion in auto insurance premiums since 1988 as a result of that prior approval system.