AB 52 and the Fight to Stop Health Insurance Industry Price Gouging
By Richard Holober
Consumer Federation of California
A bill to regulate health insurance rate hikes faces fierce industry opposition as it moves through the legislature. AB 52 (Feuer) would rein in health and HMO premium increases that soared 131% from 1999 to 2009 - nearly five times the rate of inflation.
Excessive health insurance rate increases have priced coverage out of the reach of millions of Californians. Today, 8.2 million state residents have no health insurance. Businesses are finding it difficult to pay for these rate hikes, and pass the increased costs on to workers, or opt for less expensive – and less comprehensive – coverage plans.
Last year, Blue Shield, a California non-profit insurer lavished its CEO with a $4.6 million salary and then proposed premium rate hikes as high as 59% for certain individual policies. The company retracted this proposal in the wake of a storm of public outrage. In April 2011, Anthem Blue Cross, California’s largest health insurer, raised rates on 120,000 California customers by 16%, despite a finding by state regulators that the increase was unreasonable.
AB 52: Regulating Health Insurance Rate Increases
AB 52 would give state regulators the same approval authority over health insurance and HMO rates that have been in place for homeowners and automobile insurance policies since voters approved Proposition 103 in 1988. A study by Consumer Federation of America found that California’s automobile insurance rate regulation saved motorists over $62 billion in a 20 year period.
This critical measure would force insurers to provide proof to the Insurance Commissioner or the Department of Managed Health Care (for HMOs) that proposed rate hikes are justified. Under this bill, the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) would have regulatory authority to approve, deny, or modify excessive rate changes. It requires plans and insurers to submit to the departments explanatory information, allows the departments to hold public hearings, and gives the public the opportunity to comment on proposed rate changes. It also prohibits insurers from proposing rate changes on each product more than once per year. The measure, modeled on Proposition 103, allows insurers to make a fair rate of return (profit).
AB 52 strengthens and expands upon existing federal and state laws for health insurance rate review. Under the federal Affordable Care Act (Public Law 111-148), the federal Secretary of Health and Human Services must establish a process for reviewing unreasonable health insurance rate increases. Before implementing an increase, health insurers must submit and publicly post online a justification for such an increase. Draft regulations for rate increase disclosure and review are pending. Federal law merely establishes rate review, with no authority to regulate excessive premium rate hikes.
State law requires health plans and insurers to submit detailed data and actuarial justification for rate increases at least 60 days in advance of increasing their customers’ rates. The actuarial analysis must be performed by an independent actuary who is not employed by a plan or insurer. The departments may post online rate changes submitted by insurers, if a rate filing contains inaccurate information, or if an insurer’s unreasonable rate increase is found to be unjustified.
Currently, DMHC and CDI have the authority to review whether or not proposed rate increases are excessive, unjustified, or unfairly discriminatory, but neither department has the authority to reject such an increase. AB 52 would grant departments the authority for this crucial consumer protection.
The recent enactment of federal health care reform – and the accompanying individual mandate - makes AB 52 all the more essential. Without AB 52, millions of Californians will be at the mercy of the insurance industry – forced to purchase health insurance with no restriction against premium rate profiteering.
Over 30 other states have given their insurance commissioners the authority to reject excessive health insurance rate hikes. It is time we do the same here in California.
AB 52 Faces Fierce Industry Lobbying in the Senate
AB 52 overcame fierce industry lobbying to win approval by the State Assembly on June 2nd by a vote of 45 in favor, 28 opposed, and 7 not voting (same as voting No). On July 6th the bill cleared the Senate Health Committee by a vote of 5 in favor, 3 opposed, and 1 not voting. AB 52 is scheduled to be heard in the Senate Appropriations Committee this week. If approved, the bill will head to the Senate floor for a final do or die vote.
Let your State Senators know we want affordable health insurance. We can’t risk having our voices drowned out by insurance lobbyists’ full court press.
Richard Holober is the Executive Director of Consumer Federation of California.