California Bill Regulating Health Insurance Rates Passes Committee

July 7, 2011

A California bill that would allow state officials to reject rate increases proposed by health insurers has passed a key committee vote.

The Senate Health Committee approved the measure in a 5-3 vote. The bill, AB52, now goes to the Senate Appropriations Committee.

Groups representing insurers, doctors and hospitals have been trying to have the bill weakened or killed, although for different reasons.

Thirty-four other states and the District of Columbia already provide regulatory oversight over health rates.

But the outcome of the debate in California has national significance. The sheer scale in the California insurance market, along with the state’s political landscape and national influence, make it a battleground state for such regulations.

California, home to one of every eight Americans, represents 11 percent of the national market for those with health insurance through an employer and 15 percent for those with individual health coverage, according to the Kaiser Family Foundation.

If approved and signed into law, the legislation would allow the state insurance commissioner or the Department of Managed Health Care to reject rate increases deemed excessive. The commissioner already can reject rate hikes for other types of insurance.

Supporters say the bill would protect Californians against excessive rate hikes by profit-oriented insurance companies.

But critics say the California proposal is far more wide-reaching than those in most other states and could create a bureaucracy that adds costs but does nothing to address the rising medical costs that drive up insurance rates. They warn that insurers forced to squeeze out costs will reduce payments to doctors, which in turn could force doctors to reduce care for low-income patients.

“AB52 is a misguided bill that will have the effect of limiting patients’ access to care,” said Patrick Johnston, president of the California Association of Health Plans.

Health and insurance industry representatives also see political hazard in a bill that puts regulatory veto power in the hands of the insurance commissioner — an elected office in a state that tends to fill those offices with ambitious Democratic politicians.

The insurers are major political players in California, supporting both political parties and key members of legislative health committees with campaign contributions.

State finance records showed Aetna, Anthem Blue Cross, Blue Shield of California and UnitedHealthcare made a total of $3.4 million in campaign contributions during the 2009-2010 election cycle, including tens of thousands to members of the Senate Health Committee. Two insurance company-backed political action committees accounted for more than $550,000 in additional political backing.

Insurance Commissioner Dave Jones, a former state lawmaker, and other commissioners have won concessions and smaller health rate hikes by using the office as a bully pulpit against insurers. On Tuesday, he emailed an appeal for support, noting the heavy lobbying against the bill and asking supporters to call fellow Democrats who sit on the Senate Health Committee.

“Ask them to reject `poison pill’ amendments that would undermine our efforts to pass a strong bill,” Jones wrote.

Jones has argued that existing rate oversight is too weak to protect the public.

Supporters of the bill note that insurer Anthem Blue Cross raised rates for 120,000 customers by an average of 16 percent in April even after regulators called the hike excessive. A previous rate hike of nearly 40 percent for some customers proposed by Anthem was cited by President Barack Obama as an example of the need for health insurance reform.

The bill by Assemblyman Mike Feuer, D-Los Angeles, has been fiercely debated at every step in the legislative process.

The Assembly Health Committee barely approved it in April on a mostly party-line vote. The full Assembly signed on in June with just one vote to spare after all Republican lawmakers walked off the floor in protest, one Democrat voted against it and others declined to vote.

Last week, the Senate Health Committee heard more than three hours of testimony. Workers talked about the choice between paying rising rates for health insurance or their mortgage. One teacher said a colleague faces bankruptcy over medical debt after she dropped coverage because of rising rates on one of her children, who was then injured in a motorcycle accident.

Low reimbursement amounts for care under the state’s Medi-Cal program for the poor limit the number of doctors who take part in the program. Critics of the bill say insurance companies that see rate increases reduced or rejected will have to cut the rates they pay to doctors, many of whom subsidize care for the poor using the payments they receive from patients with private insurance.

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