California’s Fight to Stop Health Insurance Price Gouging and the Single Payer Solution
By Zack Kaldveer
Consumer Federation of California
As California families continue to reel from the most severe economic downturn since the Great Depression, health insurance premium rates have soared by 153% since 2002, nearly five times the rate of inflation.
Businesses are finding it difficult to pay for these rate hikes, and pass the increased costs on to workers. Business owners and employees are forced to absorb these rising costs or search for less expensive – and less comprehensive – coverage options.
This injustice isn’t so hard to comprehend considering only four insurance companies control 71% of the California market - setting premiums behind closed doors and without accountability.
While businesses and families struggle to pay unaffordable premiums that have double digit increases every year and workers face high unemployment and stagnant wages, Blue Shield lavished its CEO with a $4.6 million salary and then proposed premium rate hikes as high as 59% in 2011 (but later revoked the proposal due to a massive public outcry).
In April 2011, Anthem Blue Cross raised rates on 120,000 California customers by 16%, despite a finding by state regulators – that lacked the authority to prevent it - that the increase was unreasonable. And today, May 1st, Anthem Blue Cross, Health Net and UnitedHealthcare will increase health insurance premiums on over 1 million Californians. This at a time
that the federal Centers for Disease Control found that 1 in 5 Americans are burdened by medical debt and half of them are unable to pay the debt at all (esp. young families, the working class, and the poor).
Something must be done.
The Affordable Care Act: Some Positive Reforms, But Insufficient
Unfortunately, the President’s Affordable Care Act is unequipped to rein in these rising health care costs. The new law has made some significant improvements to the system, including: banning the denial of care due to preexisting conditions; insuring 2.5 million young adults that can now stay on their parent’s plan until they are 26; increasing funding for community health clinics; aiding medical students who are training to become primary care physicians; requiring insurers to spend at least 80% of total dollars on providing medical care; making health insurance affordable for tens of millions of Americans currently priced out of the market; and closing the ‘donut hole’ for Medicare recipients (saving them 50% on prescription drugs).
However, each component of the President’s original plan that would have more directly addressed the problem of rising health care costs was jettisoned during the 2009-10 Congressional debate due to horse trading with Big Pharma, the health insurance industry, and Republican lawmakers. These included: trading away a robust public option in exchange for key industry support; failing to eliminate the anti-trust exemption for the health insurance industry; preventing the government from negotiating drug prices or importing cheaper generic drugs from Canada; and providing no real regulatory mechanism that could block exorbitant and unjustified increases in health insurance premiums.
This leaves it up to California - and other states - to regulate skyrocketing health insurance rates that continue to stifle economic “recovery” and endanger the health and quality of life of its citizens.
Justify Rate Increases: A Bill and a Ballot Measure
State regulators should have the power to veto health insurance industry attempts to unjustifiably gouge consumers. The California State legislature should immediately support this effort to rein in rising premiums costs – a step already taken by 35 states.
While the Affordable Care Act gave state Insurance Commissioners the power to declare that a rate increase is excessive - they can’t do anything to stop it. To date, nationally, this “shaming” technique has successfully convinced insurance companies to drop or reduce their initially proposed premium increases in a mere 17 percent of 300 cases in 2011.
Assembly Bill 52 (Feuer) – now one state senate vote away from reaching the Governor’s desk - would empower the State Insurance Commissioner to approve, modify or reject proposed premium rate hikes. The Department of Managed Health Care would get comparable authority over proposed HMO rate hikes.
The bill is modeled after Proposition 103, which voters approved in 1988 despite a $70 million opposition campaign by the insurance industry. Proposition 103 gave the Insurance Commissioner rate approval authority over other lines of insurance including homeowners’ and automobile policies.
Proposition 103 provides a model of effective regulation which allows insurers to earn a fair rate of profit, while preventing excessive rate gouging. Since Prop 103 passed, auto insurance premiums have gone up just 3.8% in California, while they rose an average 42.9% nationally. California drivers saved $62 billion, according to the Consumer Federation of America.
A November Ballot Initiative and Petition
If AB 52 (Feuer) fails to clear those two final hurdles, a potential November initiative proposed by Consumer Watchdog would give voters the choice. The initiative (Insurance Rate Public Justification and Accountability Act), currently in the signature gathering stage (click here to print, sign and return the official petition today), would force health insurance companies to publicly justify their rates, and get permission from the Insurance Commissioner before rate increases take effect, in addition to limiting how much they can spend on CEO salaries and bonuses.
Apparently this basic concept of fairness was lost on Anthem Blue Cross parent company CEO Angela Braly who recently told investors that California doesn't need the health insurance rate regulation initiative because federal law adequately protects patients. Braly happened to take home $13.2 million in compensation in 2011 while her company plans to raise rates by more than $100 million for over 700,000 Californians as Anthem raked in $856 million in profits in the first quarter of 2012.
It’s past time health insurers face the same public scrutiny that has protected auto and homeowners insurance policyholders. Insurers typically require patients to get pre-approval before they pay for a procedure. It’s only fair that we too have an approval process before they make us pay more for coverage.
Big Insurance Kills California’s “Medicare for All” Legislation
If we ever get serious about addressing the state’s health care crisis, from skyrocketing premiums to the near 8 million uninsured Californians (to the millions more underinsured and denied critical care), there is a simple, proven and effective solution: a “Medicare for All”, single payer system.
Unfortunately, precisely such a bill - SB 810 (Leno) - was voted down in the State Senate in February by a vote of 15 to 19, with 6 abstentions (the exact number of votes needed to reach the 21 necessary to pass). To no surprise, the six Democratic legislators that refused to join their colleagues in supporting this legislation, and instead joined the entire Republican caucus in opposition, received large sums of money from the health insurance industry. If enacted, quality, comprehensive health coverage would have been provided to every Californian while dramatically reducing premiums for businesses and families.
How long can California afford to waste 30% of every health care dollar on a private health insurance bureaucracy (including advertising, CEO salaries, bonuses, and profits to impress Wall Street) designed to minimize the payment of claims instead of maximizing the health of the people?
SB 810 works by pooling the money that government, employers and individuals spend on health care each year and using that money more efficiently to ensure that 95% of every health care dollar is devoted to actual health care, rather than clinical and administrative waste.
We have the money to provide quality care for everyone - yet we have millions of people who remain uninsured while millions more go bankrupt and are denied care they thought was covered. Study after study proves that a single-payer, universal health care system not only cuts costs in the first year, but it also contains the growth of health care spending over the long term.
Aren’t the lives of Californians and the health of economy more important than an industry that profits at the peoples’ expense?
Consider the costs, as a nation, we all pay for a health care system that was built, not on the basis of affordability, quality, or a moral commitment to one another, but on decades of health insurance lobbying and lavish campaign contributions to lawmakers: 45,000 Americans die every year because they can't afford health insurance; 62% of bankruptcies are due to unaffordable health care costs; we spend twice as much as any other country (as much as 3 times as most) on health care yet have the 37th ranked system in the world in terms of overall quality – while leaving nearly 50 million people uninsured.
Other nations have come to realize a basic truth: when a dollar sign is put on people’s lives - and health care is turned into a commodity - big business will do what it always does, by law: maximize profit for its shareholders.
In terms of how that relates to the business of health care: deny coverage to the sick and less affluent, charge consumers as much as possible for what care they do receive, and "pay out" (or deny) as little as possible for that care.
In contrast, an ideal, public health care system is based on an opposite, rational business model: charge the consumer as little as possible, and provide everyone, regardless of wealth, with as much care as possible (largely accomplished by cutting out administrative waste and the profit motive).
Until a majority of our elected representatives have the courage to embrace what every other major democracy in the world has – that health care is a right and a basic human need, not a privilege for those that can afford it – our state, and nation, will continue to waste $ hundreds of billions a year while needlessly sacrificing the lives of untold numbers of Americans so the health industrial complex can continue to make record profits - while doling out massive political contributions so lawmakers will allow it.
In the meantime, the very least we can do is let voters decide whether the health insurance industry should have to justify its rate increases in California.
Zack Kaldveer is the Communications Director for the Consumer Federation of California, a non-profit advocacy organization. Since 1960 CFC has testified before the California legislature annually on dozens of bills that affect millions of consumers. Zack also authors the blog Privacy Revolt.