By Matt Perry
As health insurance premiums continue to escalate, consumer groups and patient advocates are asking the California Legislature to regulate the price of coverage. Yet outspoken opponents — including health insurers, doctors and hospitals — claim that rate regulation may not lower rates and could instead harm the quality of care Californians receive.
Earlier this month the California Assembly passed AB 52, which would give two state agencies the power to approve or reject rate increases. As the contentious bill proceeds to the Senate and a legislative maelstrom, medical interests and consumer groups continue to spar over whether capping healthcare rates will limit escalating costs, and if health insurance rates can be regulated like those for automobiles.
Without the bill’s protection “California families will continue to live in fear that they are just one rate hike away from no longer being able to afford health insurance,” says the bill’s co-sponsor, Assemblyman Mike Feuer (D-Los Angeles).
But opponents claim that the bill would prevent doctors and hospitals from recouping proper fees, thereby reducing access to care.
The California Medical Association (CMA) says rate regulation would have a chilling effect on doctors already besieged by cost controls, and reduce the number of primary care physicians, who already face severe shortages in the state, especially in rural counties. Besides reducing access to physicians, CMA claims doctors could also be forced to see more patients for a shorter period of time.
Under the bill, once submitted for approval, rates can be approved, rejected or revised to a lower percentage. Commissioners from the Department of Managed Health Care or the Department of Insurance could decide whether a rate increase is unreasonable under existing state law using actuarial principles such as medical cost inflation and medical loss ratio — the percentage of an insurer’s revenue spent on health costs, as opposed to administrative costs and profits.
For example, the commissioners of DMHC or DOI could claim that based on evidence supplied, only a 10% rate hike was justified, rather than 20%.
After a commissioner’s decision, the health insurer would have several options: request an arbitration hearing held by an administrative law judge, or sue the department in state court. The health insurer can also withdraw the rate hike and re-submit it with additional supporting evidence.
Arbitrators could overrule the commissioners if their decisions are considered arbitrary.
Rate hikes for each plan would be limited to once a year.
No portion of the bill addresses the relationship between the health insurer and the providers of medical services – doctors or hospitals – which are private contractors.
Joining the California Medical Assn. in opposing rate regulation is the California Association of Health Plans (CAHP), which says that all medical providers depend on private insurance to recoup the billions of dollars they lose annually treating the uninsured and underinsured.
Approximately 8 million Californians are currently uninsured.
“By setting arbitrary limits on private insurance, AB 52 will lead to more emergency department closures, longer delays in getting emergency care and even fewer doctors willing to accept Medi-Cal or Medicare,” said a CAHP spokesperson.
Since 1990, many hospitals serving the urban poor have closed because of low reimbursements.
The California Hospital Association claims the unintended effect of rate regulation would be “seriously undermining the ability of health care providers to serve our patients.”
The health plans association says the bill targets health insurers instead of the real culprits of rising healhcare costs: chronic disease, treatment inefficiency, and expensive new technologies that often go unused. Chronic disease accounts for 70% of all American deaths, according to the Centers for Disease Control and Prevention; in 2005 half of American adults suffered from at least one chronic disease.
If passed by the Senate and signed by Governor Brown, the bill would require that all health insurance rate increases be reviewed and approved by the state’s Department of Managed Health Care, which oversees health maintenance organizations (HMOs), and the Department of Insurance (DOI) for individual policies. DOI currently has the power to review and approve car insurance rate hikes.
Last year, consumer groups were outraged when Anthem Blue Cross announced it would raise individual plan rates up to 39%. The state’s largest for-profit health insurer, which specializes in individual policies, later rescinded the rate increases after vehement opposition, including criticism from President Obama and the U.S. Congress.
Among those shocked by the planned Anthem Blue Cross price hike was Dave Jones, then chairman of the Assembly Health Committee. Last fall, Jones was elected the state’s insurance commissioner, where he oversees automobile insurance rates and is a prime supporter of AB 52.
Besides a legion of California healthcare advocacy and disease groups, rate regulation is also supported by Kathleen Sebelius, U.S. Secretary of Health and Human Services.
“We believe that insurance commissioners should have rate approval authority and will continue to support states’ efforts to review premium increases and protect consumers,” Sebelius said.
Supporters of the bill say rate hikes could come fast and furious as most provisions of the Affordable Care Act take effect beginning in 2014.
Does regulation of healthcare rates work in other states with some form of regulation and approval? The legislative analysis of AB 52 reports “there is little reliable scientific evidence about the impact of rate review and the authority to reject rate increases on long-term premium growth.”
Opponents are evenly divided.
Health Access, a leading consumer group defending healthcare rights, references a report by the Kaiser Family Foundation that rate review and approval are essential to prevent onerous rate increases. (KFF is unrelated to the Kaiser Permanente health system.)
But John R. Graham, director of Health Care Studies at the Pacific Research Institute, disagrees. In his comprehensive study of 43 states – 4 of them unregulated, 19 merely requiring insurers to file increase notices with the state, and 20 demanding state approval of rate hikes — Graham found a surprising result.
“There is little or no evidence that prior approval of premium increases has protected consumers from unreasonable rate hikes,” summarized Graham.
Graham says insurance companies are unfairly targeted in the healthcare price wars and that they are merely “a pass-through” of costs rung up by doctors and hospitals.
“Voters see premiums, but they do not see the underlying medical costs because most (costs) are passed through the health plan,” said Graham.
CAHP claims that insurance company profits are a scant 3% of a patient’s healthcare premium.
As the fight over AB 52 regulation escalates, Blue Shield of California chairman Bruce Bodaken recently announced that the company would voluntarily limit its profits to 2%, apparently in response to fears of rate regulation.
Besides the concerns over access to healthcare, CAHP also fears a bureaucratic boondoggle, and points to a legislative analysis of AB 52, which estimates an annual $30 million in costs for administering the bill. This would, however, be partially offset by $3 million in federal funding the state will receive over the next three years, with the potential for an additional $2 million a year.
Other parties could benefit financially, such as one of the bill’s primary supporters, Consumer Watchdog. Long a defender of consumer rights, the progressive organization headquartered in Los Angeles has bankrolled over $6 million in “intervenor fees” since 2004 defending improper rate hikes, most of them against auto insurers. The money is paid for “reasonable advocacy fees and expenses.”
CAHP says that costly lawsuits would merely result in higher premiums.
AB 52 would be an aggressive step forward from last year, when California passed SB 1163, which simply required that health insurance companies submit rate changes for all small groups (along with “unreasonable” rate increases for large groups) 60 days prior to the effective date.
The bill was referred to the Senate Committee on Health June 8.
If passed, AB 52 would take effect in January, 2012. It be retroactive to January1, 2011, and would allow approval of any rate hikes that occur this year.