CA Legislature to Insurers: Cap Those Premium Hikes!

California’s insurance costs have been spiraling upwards in the past several years, increasing more than 134% since 2002, which is in excess of five times more than the state inflation rate. Californians are bracing to find out whether a planned Anthem Blue Cross rate increase will be as high as forecasted—some could be paying almost 20% more for their health policies, as well as larger deductibles and co-payments. In response to these rate increases, California Democratic lawmakers have been pushing a new bill designed to rein in health insurance costs for Californians.

AB 52, which is a bill co-authored by Jarrod Huffman and Mike Feuer, both Assemblymen from Los Angeles, would allow state regulators to use their authority to deny large insurance rate increases, such as Anthem Blue Cross’s 16.4% increase in premiums. Almost 200,000 California Anthem policyholders will face these rate increases beginning May 1. Anthem Blue Cross has revised and postponed their rate increases several times in the face of public outcry and the reaction of state lawmakers.

Assemblyman Huffman believes that between now and when the Patient Protection and Affordable Care Act is fully-functional in 2014 that such increases are very likely.

“I think there’s every reason to believe they are going to gouge California policyholders if we let them,” Huffman said. AB 52, a practical way for the state to help taxpayers deal with these kinds of tactics, is “a no-brainer for everyone but insurance companies.”

This will be the fourth time in the past four years that the California Democrats have pushed for health insurance rate increase control. Similar legislation was defeated in 2008, 2009 and 2010, largely due to heavy lobbying by the powerful insurance industry. California Senator Dianne Feinstein and the current California Insurance Commissioner, Dave Jones, are both squarely behind the new bill, which is very similar to the previous, failed bills.

“They fought it year after year because they are making out like bandits and everybody else is hurting,” declared State Sen. Mark Leno, whose southern Sonoma County district includes San Francisco.

California insurers state that AB 52 is unnecessary and, in the words of David Hodges, an insurance broker from Santa Rosa, “entirely overkill.”

California’s current insurance regulation law, which was written by Senator Leno, makes insurance companies submit their rate increases to independent actuaries. Anthem Blue Cross states that they did submit their rate hikes to an outside actuary, who found that they were not “unreasonable or unjustified.” Another part of the state law states that a minimum of 80% of health premiums paid by consumers must be spent directly on patient care.

Insurers respond that they do spend the minimum 80% and more, with Kaiser Health Systems declaring that they spend .92 of every premium dollar on patient care. The real “cost drivers,” according to the insurance industry lobby, are the prices charged by hospitals and doctors, as well as drugs, medical supply costs, and low reimbursement payments by Medicare and Medi-Cal state subsidized insurance programs.

Regardless of these costs, the legislature and consumer groups point to the fact that America’s largest health insurers posted profits of almost $12 billion in 2010, a figure which is up by 51% from two years ago.

“Their margins are off the charts,” Assemblyman Huffman says. “That tells you this is not about cost.”

In the absence of legislation such as AB 52, the state has no ability to rebuff excessive insurance rate hikes, according to Assemblyman Huffman and Senator Leno. It has to be pointed out that California already has such authority in the areas of homeowner’s and automobile insurance, and that more than half of the other states have requirements for prior approval of health premiums.