New Health Bill Pinches Insurers

A power struggle between health insurance companies and state regulators over who should control insurance rate increases is gaining intensity. A new health insurance rate regulation bill proposes giving the powers to the California Department of Insurance and the Department of Managed Health Care. The departments currently review rate increase proposals, but carriers have the final say over the rates they set. The bill passed the Assembly this month and is being reviewed by the Senate. The insurance industry is up in arms about the bill and its estimated annual cost of $30 million, as projected by a government committee. Meanwhile, state regulators say the legislation is necessary to eliminate “excessive” rate hikes and argue the implementation costs will not be as steep as estimated. From 1999 to 2009, health insurance premiums rose 131 percent for families, according to a 2009 survey by the Kaiser Family Foundation. That’s much higher than the 38 percent increase in workers’ wages and the 28 percent inflation rate during the same period, the survey found. Industry opposition “We have a concern about any plan that drives up overall costs and not the other way around,” said Brad Kieffer, spokesman for Woodland Hills-based Health Net. “We’re concerned because, overall, the bill does not address the cost pressures that are responsible for driving (up) premiums.” Some of those cost pressures include rising medical and pharmaceutical costs, rising technology costs and the nation’s growing aging population, Kieffer said. The bill would require insurers to file additional information with the state departments. Some of that includes historical data on rate changes and proposals, insurers’ expected rate of return, executive salary and bonus information, statements of the insurers’ nonmedical and medical expenses and other financial details. Regulators say collecting detailed financial information from insurers helps them more accurately evaluate the proposals. “It would allow me to look at the question of whether or not the rates are excessive from the standpoint of administrative costs and profitability,” said California Insurance Commissioner Dave Jones, while speaking at a Valley Industry and Commerce Association event in North Hollywood last month. “And I think there’s a lot of public interest in giving the insurance commissioner that authority,” he said. Health Net’s Kieffer said the bill will create added administration costs that could trickle down to policyholders. Under the bill, insurers also would be required to pay filing fees to cover rate review costs and would have to pay penalties for violations. In addition, insurers would be liable for certain court expenses when enrollees request hearings regarding proposed rate changes. “If you’re regulating health insurance rates and you’re not regulating provider fees, they can keep going up and up and up,” said David Benson, vice president of legislation for the Los Angeles Association of Health Underwriters. The association opposes the bill. Providing more regulation will also likely delay policy renewals, Benson said. The process currently takes about six months, but that could double or triple, if the bill is approved, he said. Officials from Woodland Hills-based Anthem Blue Cross could not be reached for comment. Officials from Blue Shield of California and Aetna declined to comment on the legislation, deferring to their position to that held by the California Association of Health Plans. The organization opposes the bill, saying it could limit access to health care. California hospitals and physicians rely on private insurance payments to offset gaps in government-based insurance, said Nicole Evans, spokeswoman for the organization. Effective: Jan. 1, 2012 Health Insurers Must: Submit rate increase applications to state insurance regulators for approval, denial or modification by regulators Bill Prohibits: Approval excessive, inadequate or discriminatory rate increases Projected Costs: At least $30 million Civil Violation Penalties: $50,000 at most for non-willful; $100,000 at most for willful Other Potential Costs: Certain enrollee court fees for hearings Status: Passed by Assembly, in Senate She said the bill creates excessive regulation since there are already some state and federal laws in place to control costs. Area insurance brokers say delays in policy renewals could make it difficult to project future health care costs for clients. “It’s hard to project 18 months into the future,” said Sam Smith, president of Genesis Financial/Creative Employee Benefits in Sherman Oaks. “If I guess wrong, and I advise my clients wrong, they could very well be into the red.” He supports the bill, but said the delays could be problematic. Others who have opposed the bill include the California Medical Association, California Hospital Association, California Association of Physician Groups, California Chamber of Commerce and many other groups. Need for regulation Assemblyman Mike Feuer said he’s aware of the insurance industry’s concerns, and has invited some of the bill’s opponents to discuss their concerns in hopes of reaching a mutual resolution. “None of the opponents have followed up with that request,” Feuer said. California families cannot rely on the “whim of insurance companies” to determine whether or not they can afford to get health care, Feuer said. “We have seen over the past number of months a series of astronomical rate increases that were proposed or took effect,” he said. In some cases, insurance rate increases were found to be unjustified, Feuer said. While health care costs went up between 3 percent and 4 percent in 2009, certain carriers were increasing their rates by much higher percentages, he said. Anthem Blue Cross received national scrutiny after it proposed a rate increase as high as 39 percent for some individual policies last year. The insurer lowered that increase after an independent review showed calculation errors. Feuer said the bill does not aim to reject all proposed increases, just those that are found not to be justified. And the costs to implement the bill are likely to be much lower than the Appropriations Committee’s $30 million estimate, he said. That’s because regulators are already spending money to review rate increase proposals, he said. The bill also has several supporters. Those include the Small Business Majority, California Chiropractic Association, California Physical Therapy Association and several ethnically based chambers of commerce. John Arensmeyer, CEO of the Sausalito-based Small Business Majority, said rising insurance premiums are one of the topics small businesses are most concerned about. “(The bill’s) going to deal with one aspect of the problem, which is to make sure any increases have a sound basis behind them and are not just a way to pad profit,” he said. But insurers are not the only ones to blame, he said, noting several other factors contribute to the rising insurance costs. “We think it’s going to be one extra help,” Arensmeyer said, of the bill. “It’s not going to solve all problems.”