Ballot Proposal Would Regulate Health Insurance Rates

By Zack Kaldveer

Consumer Federation of California

As California families continue to reel from the most severe economic downturn since the Great Depression, health insurance premium rates have soared by 153 percent since 2002, nearly five times the rate of inflation.

Businesses are finding it difficult to pay for these rate hikes, and pass the increased costs on to workers. Business owners and employees are forced to ab­sorb these rising costs or search for less expensive – and less comprehensive – coverage options.

This injustice isn’t so hard to comprehend considering only four insurance companies control 71 percent of the California market – setting premiums behind closed doors and without accountability.

While businesses and families strug­gle to pay unaffordable premiums that have double digit increases every year and workers face high unemployment and stagnant wages, Blue Shield lav­ished its CEO with a $4.6 million salary and then proposed premium rate hikes as high as 59 percent in 2011 (but later revoked the proposal due to a massive public outcry).

In April 2011, Anthem Blue Cross raised rates on 120,000 California cus­tomers by 16 percent, despite a finding by state regulators – but lacking the authority to prevent it – that the increase was unreasonable. And today, May 1st, Anthem Blue Cross, Health Net and UnitedHealthcare will increase health insurance premiums on over 1 million Californians.

Something must be done.

The Affordable Care Act: Some Positive Reforms, But Insufficient

Unfortunately, the President’s Af­fordable Care Act is unequipped to rein in these rising health care costs. The new law has made some significant improve­ments to the system, including: banning the denial of care due to preexisting conditions; insuring 2.5 million young adults that can now stay on their parent’s plan until they are 26; increasing fund­ing for community health clinics; aiding medical students who are training to be­come primary care physicians; requiring insurers to spend at least 80 percent of total dollars on providing medical care; making health insurance affordable for tens of millions of Americans currently priced out of the market; and closing the ‘donut hole’ for Medicare re­cipients (saving them 50 percent on prescrip­tion drugs).

However, each component of the President’s original plan that would have more directly addressed the prob­lem of rising health care costs was jet­tisoned during the 2009-10 Congressional debate due to horse trading with Big Pharma, the health insurance industry, and Republican lawmakers. These included: trading away a robust public option in exchange for key industry support; failing to eliminate the anti-trust exemption for the health insurance industry; preventing the government from negotiating drug prices or importing cheaper generic drugs from Canada; and providing no real regula­tory mechanism that could block exorbitant and unjustified increases in health insurance premiums.

This leaves it up to California – and other states – to regulate skyrocketing health insurance rates that continue to stifle economic “recov­ery” and endanger the health and quality of life of its citizens.

Justify Rate Increases: A Bill and a Ballot Measure

State regulators should have the power to veto health insurance industry attempts to unjustifiably gouge consumers. The California State legislature should immediately support this effort to rein in rising premiums costs – a step already taken by 36 states.

While the Affordable Care Act gave state Insurance Commissioners the power to declare that a rate increase is excessive – they can’t do anything to stop it. To date, nationally, this “sham­ing” technique has successfully convinced insurance companies to drop or reduce their initially proposed premium increases in a mere 17 percent of 300 cases in 2011.

Assembly Bill 52 (Feuer) – now one state senate vote away from reaching the Governor’s desk – would empower the State Insurance Commissioner to approve, modify or reject proposed premium rate hikes. The Department of Managed Health Care would get comparable authority over proposed HMO rate hikes.

The bill is modeled after Proposi­tion 103, which voters approved in 1988 despite a $70 million opposition campaign by the insurance industry. Proposition 103 gave the Insurance Commissioner rate approval authority over other lines of insurance including homeowners’ and automobile policies.

Proposition 103 provides a model of effective regulation which allows insurers to earn a fair rate of profit, while preventing excessive rate goug­ing. Since Prop 103 passed, auto insur­ance premiums have gone up just 3.8 percent in California, while they rose an aver­age 42.9 percent nationally. California driv­ers saved $62 billion, according to the Consumer Federation of America.

A November Ballot Initiative and Petition

If AB 52 (Feuer) fails to clear those two final hurdles, a potential Novem­ber initiative proposed by Consumer Watchdog would give voters the choice. The initiative (In­surance Rate Public Justification and Accountability Act), currently in the signature gathering stage (click here to print, sign and return the official petition today), would force health insur­ance companies to publicly justify their rates, and get permission from the In­surance Commissioner before rate in­creases take effect, in addition to limit­ing how much they can spend on CEO salaries and bonuses.

Apparently this basic concept of fairness was lost on Anthem Blue Cross parent company CEO Angela Braly — who recently told investors that California doesn’t need the health insurance rate regulation initiative because federal law adequately protects patients. Braly happened to take home $13.2 million in compensation in 2011 while her company plans to raise rates by more than $100 million for over 700,000 Californians as Anthem raked in $856 million in profits in the first quarter of 2012.

It’s past time health insurers face the same public scrutiny that has protected auto and homeowners insurance policyholders. Insurers typically require patients to get pre-approval before they pay for a procedure. It’s only fair that we too have an approval process before they make us pay more for coverage.

Big Insurance Kills California’s “Medicare for All” Legislation

If we ever get serious about addressing the state’s health care crisis, from skyrocketing premiums to the near 8 million uninsured Californians (to the millions more underinsured and denied critical care), there is a simple, proven and effective solution: a “Medicare for All,” single payer system.

Unfortunately, precisely such a bill – SB 810 (Leno) – was voted down in the State Senate in February by a vote of 15 to 19, with six abstentions (the exact number of votes needed to reach the 21 necessary to pass). To no one’s surprise, the six Democratic legisla­tors who refused to join their colleagues in supporting this legislation, and instead joined the entire Republican caucus in opposition, received large sums of money from the health insur­ance industry. If enacted, quality, comprehensive health coverage would have been provided to every Califor­nian while dramatically reducing pre­miums for businesses and families.

How long can California afford to waste 30 percent of every health care dollar on a private health insurance bureaucracy (including advertising, CEO salaries, bonuses, and profits to impress Wall Street) designed to minimize the payment of claims instead of maximizing the health of the people?

SB 810 works by pooling the money that government, employers and individuals spend on health care each year and using that money more efficiently to ensure that 95 percent of every health care dollar is devoted to actual health care, rather than clinical and administrative waste.

We have the money to provide quality care for everyone – yet we have millions of people who remain uninsured while millions more go bankrupt and are denied care they thought was covered. Study after study proves that a single-payer, universal health care system not only cuts costs in the first year, but it also contains the growth of health care spending over the long term.

Aren’t the lives of Californians and the health of economy, more important than an industry that profits at the peoples’ expense?

Consider the costs, as a nation, we all pay for a health care system that was built, not on the basis of affordability, quality, or a moral commitment to one another, but on decades of health insurance lobbying and lavish campaign contributions to lawmakers: 45,000 Americans die every year because they can’t afford health insurance; 62 percent of bankruptcies are due to unaffordable health care costs; we spend twice as much as any other country (as much as three times as most) on health care yet have the 37th ranked system in the world in terms of overall quality – while leaving nearly 50 million people uninsured.

Other nations have come to realize a basic truth: When a dollar sign is put on people’s lives – and health care is turned into a commodity – big business will do what it always does, by law: maximize profit for its shareholders.

In terms of how that relates to the business of health care: deny coverage to the sick and less affluent, charge consumers as much as possible for what care they do receive, and “pay out” (or deny) as little as possible for that care.

In contrast, an ideal, public health care system is based on an opposite, rational business model: charge the consumer as little as possible, and provide everyone, regardless of wealth, with as much care as possible (largely accomplished by cutting out administrative waste and the profit motive).

Until a majority of our elected rep­resentatives have the courage to em­brace what every other major democ­racy in the world has – that health care is a right and a basic human need, not a privilege for those that can afford it – our state, and nation, will continue to waste hundreds of billions of dollars a year while needlessly sacrificing the lives of untold numbers of Americans so the health industrial complex can continue to make record profits – and continue doling out record amounts in political contributions so lawmakers will allow it.

In the meantime, the very least we can do is let voters decide whether the health insurance industry should have to justify its rate increases in California.

(Editor’s Note: An earlier Frying Pan News headline of this post erroneously reported that the proposed ballot initiative would lead to a single-payer health care system in California — it wouldn’t.)

Zack Kaldveer is the communications director for the Consumer Federation of California, a non-profit advocacy organization. He also authors the blog Privacy Revolt. His post first appeared on California Progress Report.