By Daniel Weintraub
California lawmakers last month rejected a bill that would have subjected health insurance companies to the same kind of regulation that auto insurers now face, requiring them to get prior approval from the state when they want to raise their rates. But it is pretty clear that Gov. Arnold Schwarzenegger would have vetoed that bill anyway.
Instead, the Legislature sent the governor two bills that seek to strengthen the state’s oversight of the industry while stopping short of direct rate regulation. It will be interesting to see if these more modest bills, which are still opposed by the insurance industry, escape Schwarzenegger’s veto pen in the weeks ahead.
One of the bills is SB 1163 by Sen. Mark Leno, would require insurance companies to be more open about their plans, disclosing rate increases farther in advance, proving that what they propose is “reasonable,” and making public the calculations that went into their decisions.
The bill would require insurance companies and health plans to notify customers of planned rate increases 60 days before they take effect, twice the current warning period. It also requires the firms to do extensive, independent analyses of their rate increase proposals, submit that information to regulators and make it public.
The other bill is AB 2042, by Assemblyman Michael Feuer, which would prohibit insurers from raising their rates for individual plans more than once a year.
According to an Assembly staff analysis of AB 2042, premiums paid by small employers with up to 50 workers increased 53 percent between 2003 and 2006, from $250 per month to $382. Premiums for individual coverage rose 23 percent between 2002 and 2006, to $259 per month. At the same time, the average policy for an individual paid a smaller share of the costs of a person’s care, dropping from 75 percent in 2003 to 55 percent in 2006.
Leno, Feuer and their colleagues who supported the bills contend that absent rate regulation, more disclosure would help moderate these increases. They cite a plan by Anthem Blue Cross to raise rates by nearly 40 percent this year, which the company withdrew after fierce criticism from lawmakers and consumer activists. The company later conceded that there were errors in its original calculations and withdrew the increase, only to replace it with a smaller one that has since taken effect.
But the industry contends that the bills would do nothing to slow the increase in insurance costs and might even add to the the trend. Premium increases, the firms and their associations say, are driven mainly by increases in doctor fees, hospital costs, drugs, labs and other costs of health care that the insurance companies simply pass on to their customers. Administrative costs, they claim, are a small part of the equation, but even these are likely to increase if the bills become law and the companies are given new burdens to shoulder.
Finally, it’s not yet clear how these new requirements might interact with the new rules coming down from the federal government as a result of the passage of health reform by Congress and President Obama earlier this year.
Many of these same requirements, and perhaps more, could be part of that regulatory package.
The industry says California should wait and see how that shakes out before moving forward.
But supporters of the bills say California should move now to become a model for the nation and to fill gaps that Congress left in its plan.