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Mar 18, 2004

CONTACT: Jerry Flanagan - (415) 497-1710

Blue Cross-Funded Foundation Finds Health Insurance Rate Regulation Lowers Premiums;

Rand Study Confirms CA Legislation Would "Limit Premium Growth In Short Run"

A Rand report commissioned by a charitable foundation funded by Blue Cross and controlled by HMO partisans found today in its analysis that state regulation of HMO premiums, as proposed in Senate Bill 26 modeled after California insurance reform Proposition 103, would "limit premium growth in the short run" and confirms that "it is possible health insurers have been increasing premiums to maintain high profit margins."

Ironically, the market-friendly California Health Care Foundation put out a misleading title on its news release -- claiming "report finds proposal would have little impact and could cause unintended results. CHCF was founded when Blue Cross transitioned from a non-profit to for-profit health insurer.

The only negatives found by Rand, however, are typical excuses raised by industry in response to regulation that insurers might leave the market. Insurers made the same argument following California insurance reform Proposition 103, but only left the profitable market for one day, has saved California motorists $23 billion and has significantly decreased the number of uninsured drivers.

Rand analysts do say, however, "without modification [SB 26] would do little to cure the root causes of health inflation," citing pharmaceutical costs and hospital consolidation and market power as problems. The Foundation for Taxpayer and Consumer Rights (FTCR), the sponsor of SB 26, has recommended curbs on those problems as well in conjunction with its rate regulation proposal. (See recent report at FTCR said it would go to the ballot box with a comprehensive health care overhaul in 2006 based on those proposal if the legislature fails to act before then.

While the Rand study finds premiums have gone up but profitability has remained relatively flat through 2000, profitability reports since then have shown dramatic increases. Furthermore, the Rand study did not take into account exorbitant administrative costs increases, such as advertising and CEO salaries, including a payment of up to $337 million to Blue Cross parent company CEO Leonard Schaeffer as part of its merger deal with Anthem.

"It shouldn't be controversial that not allowing HMOs to charge whatever they want will save patients money. Rand's findings support the notion that regulation works when coupled with other cost-savings reforms,' said Jerry Flanagan, health reform director at the Foundation for Taxpayer and Consumer Rights. "The California Health Foundation should be ashamed of its presentation of the findings and its apparent failure to direct Rand to examine profitability of HMOs after 2000, as profitability reports are available on a quarterly basis. Even HMO partisans cannot ignore the fact the health care premiums should be regulated in the same way car insurance premium are in California."

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The Foundation for Taxpayer and Consumer Rights (FTCR) is a non-profit and non-partisan consumer advocacy group. For more information visit us on the web at