Rate Ceiling

Back Article Dec 1, 2011 By Rich Ehisen

One of the most challenging questions surrounding the Affordable Care Act is whether the law will lower skyrocketing health care premiums. That remains to be determined, as does the outcome of an effort by one California lawmaker to grant insurance regulators power to curb those premiums.

That effort, Assembly Bill 52, was one of the most hotly contested in this year’s legislative session. It would have allowed the state Department of Insurance or the Department of Managed Health Care to have the final say on health insurance rate hikes, a power regulators already have over premium increases for auto and property insurance.

The National Conference of State Legislatures reports that California is one of 24 states where the insurance commissioner doesn’t have at least some authority over health premium increases. In California, regulators can only review proposed rate hikes and urge insurers to reconsider those they deem excessive.

Although the bill passed the Assembly handily, it stalled in the Senate and was tabled for the year. Its author, Assemblyman Mike Feuer (D-Los Angeles), has vowed to bring it back in 2012.

If he does, another furious battle is certain between the bill’s supporters — regulators and a collection of consumer and labor groups — and opponents, mostly health insurers, business groups, medical care providers and local governments. The measure also drew fire from the state Department of Finance, which claimed it would create an expensive new bureaucracy costing $57 million in its first year alone.

Regulation supporters point to what California Insurance Commissioner Dave Jones calls the “exorbitant and totally unsustainable” rate hikes many health insurers have imposed in recent years. Since 1998, he says, group health insurance rates have climbed on average by 148 percent. Those increases, Jones claims, have helped the industry’s top five companies — WellPoint Inc., Aetna Inc., Humana, Cigna and UnitedHealth Group — accumulate record profits, including $11.7 billion in 2010. That marked a 17 percent increase over 2009 and 51 percent over 2008. Jones argues that much of the burden has fallen on small businesses, which he says faced premium increases as high as 80 percent.

“This kind of regulation should have been included in the ACA to begin with,” he says. “It is the biggest missing piece in the law.”

Jones supports pending legislation in Congress authored by Sen. Diane Feinstein that would give the federal government power to deny “excessive, unjustified or unfairly discriminatory” health premium rate hikes in states where regulators don’t have that power.

“Whether we do it at the state or federal level, we absolutely must do it,” he says.

Jones has a strong ally in Anthony Wright, executive director of Health Access, a health and consumer advocacy group that supported AB 52.

“We must have some basic oversight of the health insurance industry before 2014 to ensure they are not able to game the system,” he says.

Wright and Jones point to the success of 1988’s Proposition 103, which first gave regulators the power to regulate auto insurance rates, for not only keeping insurance premium hikes to a minimum (less than 4 percent since 1988, according to the Consumer Federation of America), but for also making California one of the most competitive insurance markets in the nation.

Insurers don’t see it that way. Patrick Johnston, President and CEO of the California Association of Health Plans, calls the bill “misguided” and claims it ignores the driving force behind rising rates: the relentlessly growing cost of providing health care services.

Johnston lays some of the blame for that on the poor Medicaid and Medicare reimbursement rates for medical providers, which he says result in higher rates for private insurance policies. Many medical interests, including the California Medical Association and the California Hospital Association, also opposed AB 52, fearing it would lead to even lower reimbursements to doctors and hospitals.

Even some ACA proponents oppose greater premium regulation. Micah Weinberg of the Bay Area Council, which strongly supports the health reform law, says bills like AB 52 would only undermine the work of the California Health Exchange Board as it negotiates with insurers on the policies that would be available through the exchange in 2014.

“It’s not good for negotiating with insurers if the DOI can then come along and toss out those agreements,” he says.

But Jones argues proper regulation will bolster the system, not harm it.

“It’s rather specious to claim AB 52 will harm the exchange or medical providers,” he says. “It would in fact bar insurers from setting rates too low. It also isn’t a rate cap by any means — it is only a requirement that insurers be able to justify rate hikes with evidence of their need.”

Lawmakers are expected to take up the issue again next spring.