Prior Approval of Health Insurance Premium Increases Legislation Passes Committee--First Time in California History

“Californians face skyrocketing health insurance premiums. Increasingly, Californians cannot purchase health insurance because it is unaffordable. This measure will require health insurers to justify their premium increases and seek approval for their rates. I look forward to working with my colleagues in the Legislature to ensure that this proposal becomes part of the health care reform package that is sent to the Governor,” explained Assemblymember Jones.

Jones emphasized that this bill is critically important to Californians, especially as the legislature considers health care reform proposals by the legislative leadership and the Governor. More than 6.5 million Californians are uninsured, while others are underinsured.

Polls show that the majority of people with health insurance fear that ongoing premium increases will cost them their health insurance coverage. Health insurance premium increases are soaring far above the rate increases for wages and inflation. According to the Kaiser Family Foundation, health insurance premiums for employer-sponsored policies have increased by an average of 87% over the last six years. That far surpasses the 20% rise in wages and the 18% rise in overall inflation during that time period.

The legislation is similar to requirements in the auto insurance market under Proposition 103 that have saved drivers $23 billion since 1988. The measure would control the type of administrative waste and profiteering that allowed Blue Cross of California to keep, as overhead and profit, 50% of every premium dollar collected from individual policyholders.

Jerry Flanagan, the Health Care Advocate for the Foundation for Taxpayer and Consumer Rights (FTCR), hailed the committee's approval of AB 1554. He said: “The legislature has taken an important first step to provide health care affordability for Californians by reining in waste and profiteering."

In addition, Flanagan said that AB 1554 would provide the public more information about where health care dollars are spent. For example, California’s most profitable insurer, Blue Cross, reported $1.3 billion paid to a subsidiary company for “claims processing” as a medical expense. FTCR said that such transfers most be scrutinized to determine that companies are not claiming unjustified medical expenses, or overpaying affiliated companies for services as a strategy to move profit out of California.

He compared Jones' bill to Proposition 103, authored by consumer activist Harvey Rosenfield, founder of FTCR, and approved by voters in 1988, which established a similar “prior approval” system for many lines of insurance. During the decade after Proposition 103 was adopted, the uninsured motorist population declined by 38%. Between 1989 and 2004, California auto insurance premiums decreased 7% while premiums in the rest of the country increased 47%.

He said that since just 2003, the Foundation for Taxpayer and Consumer Rights has saved homeowners, motorists and doctors $800.95 million in premiums under Proposition 103 by challenging proposed rate increases. A similar process for challenging rate increases would be provided for health rates under the Jones bill.

Mark Leland, a small business owner from Santa Monica, endured a 264% increase in his health insurance rates in the last five years, including a 69% increase when he turned 40 and another 15% increase this year.

“To find out where my 69% premium rate hike went, I looked into the financials of the Big 5 HMO’s in California and I found something the public should be aware of: administrative expenses increased 23% this year. But enrollment in these HMO’s is declining, so how can you have these yearly 23% administrative cost increases?” asked Leland.

Steve Blackledge, legislative director CalPIRG, the California Public Interest Research Group, said: We're pleased with those who stood up to the insurance industry and their lobbyists and voted for the bill. And since the bill is still alive, we'll have new opportunities to persuade those who aren't yet on board that the policy is a strong and needed one."

AB 1554 is supported by individuals who have been the victim of dramatic health insurance rate increases and organizations such as California Public Interest Research Group (CALPIRG), Consumer Federation of California, Foundation for Taxpayer and Consumer Rights, California Federation of Teachers, California State Employees Association (CSEA) and Gray Panthers California.