Why California Health Insurance Premium Regulation Failed and Employee Mandate Passed Last Night

The Governor and the Legislature can talk about forcing employers and employees to pay for coverage but it's the insurance industry cash that's preventing them from supporting proven regulation to lower industry overhead and profit and make premiums fair. Such large donations to key committee members are not given out of the good of the insurance companies’ hearts. The defeat of AB 1554 is a large and welcome gift back to private insurers. Yee and McLeod's deliberate abstentions and the practice of ‘non-voting’ is a plague on the Legislature, allowing legislators to evade responsibility for the defeat of bills that their constituents would strongly support.”

Committee chair Sheila Kuehl (D-Santa Monica), who strongly supported the regulation bill, received no contributions from insurers.

AB 1554 by Assemblymember Dave Jones (D- Sacramento) would have required health insurers to defend their overhead and profit while getting approval for premium increases. The legislation would have applied to health insurers the same standards applying to most other insurers under Prop 103. AB 1554 was granted reconsideration which means it could be voted on again by the Senate Committee before the end of the 2008 session.

The Committee supported AB 8 (Nunez/Perata) which would require workers to pay for part of their insurance, even while the committee refused to regulate how much they would pay. Employers’ contributions would be capped, but not employees’ out of pocket costs for both premiums and rising deductibles.

Supporters of any health care reform should have voted for this bill as the foundation of reform. Proposals by Gov. Arnold Schwarzenegger, Assembly Speaker Fabian Nunez, and Senator Don Perata will either require all Californians, or workers whose employers provide coverage through a state pool, to pay for health insurance. But they allow health insurers to charge whatever they choose. AB 1554 would have curbed both double-digit premium increases and benefit reductions.

The vote also came as state regulators, under a narrow merger agreement, are investigating illegal transfer of $950 million in profit to Blue Cross' parent company. AB 1554 would have extended such oversight to all insurers.

AB 1554 was similar to requirements in the auto insurance market that have saved drivers $23 billion since 1988. It would have controlled 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. Such individual policyholders would not be protected by either the Schwarzenegger proposal or the Nunez/Perata bill.

The five California companies (Kaiser, Blue Shield, Blue Cross, PacifiCare, and HealthNet), that control 80% of the HMO market, have recorded profit increases of $11.7 billion since 2002. Four of the companies transferred $4.1 billion in profit to out-of-state parent companies since 2002. The six largest HMOs spent $1.6 billion on marketing in 2006.

In total, Governor Schwarzenegger, members of the California legislature, and political parties received $3,395,896 from the top five health insurers and their lobbying associations since 2001.

The Foundation for Taxpayer and Consumer Rights (FTCR) is California's leading nonpartisan consumer advocacy organization. For more information, visit the website http://www.ConsumerWatchdog.org