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Health Reform Does Not Control Premiums, States Look to Fill Void

Cheryl Clark, for HealthLeaders Media, March 25, 2010

A closely-watched bill has passed another hurdle on its way to accomplish in California what federal health reform legislation has not: Require health insurance plans to get prior approval before they can raise premiums. This issue was highlighted earlier this year when Anthem Blue Cross announced it planned to increase some individual insurance rates by 39%.

Though the new federal law requires almost every American to purchase health insurance or face tax penalties, nothing in the bill passed Sunday limits what health insurers can charge for those policies. Promised subsidies for the poor, financed by taxpayers, could rise exorbitantly if premiums continue to rise unbridled.

The absence of such a provision is somewhat ironic, given that the 39% Anthem hike was seen as giving reform supporters the 11th hour momentum to garner support and pass the health reform package. So two California lawmakers are trying to impose regulatory authority in Sacramento to control all future premium increases.

Plans to do so at the federal level fell apart when an amendment introduced by Sen. Dianne Feinstein (D-CA) to create a special "Medical Insurance Rate Authority" was rejected. Now, Feinstein is trying to get a similar provision passed as a separate bill.

In an address to on the Senate floor Wednesday, Feinstein said, "What is missing and what the President put in the reconciliation bill was my legislation to give the secretary of health the ability to see that medical insurance premiums are reasonable and would establish a rate authority of people who have expertise in the arena that she could consult with in levying this authority.

"That is not in the bill."

Feinstein indicated her displeasure at that Anthem increase. The company "sent out notices to 800,000 Californians and said: 'We are raising your premiums.' Premiums went up 39% for those not in a group policy, but who held individual policies.

"Can you imagine getting a notice that your insurance has gone up 40%? To add insult to injury, they then said: 'We may come back in the middle of the year and ask for another.'"

Feinstein said she asked Anthem's CEO to come in for a talk. "I asked the CEO what her salary was. Nine million a year. And you realize that these companies also have a substantial percentage that they spend on ... on the salaries of their executives ... on transportation, on conventions."

Feinstein's stand-alone proposal would give the secretary of health and human services the power to modify or deny "unjustified" health insurance premium increases, prior to them going into effect, said Feinstein aide Gil Duran. A seven-person Health Insurance Rate Authority would be created.

Feinstein also railed against health plan size. "What they have been doing is merging and acquiring companies so that they can control markets. In Los Angeles, for example, today two of these companies control 51% of all of the premiums. Once you have this market share and control, you can raise premiums with abandon," she said.

A spokesman for America's Health Insurance Plans did not return calls seeking comment, but Nicole Kasabian Evans, spokeswoman for the California Association of Health Plans, says, "There is no denying that healthcare costs are too high, but rate regulation does nothing to curb the rising cost of medical care. It is just a distraction that from the difficult task of controlling hospital, doctor, pharmaceutical and other medical costs.

"Medical treatment costs are skyrocketing. For the past decade they have increased two to three times faster than inflation. Recent federal government data revealed that increased spending on hospital care, doctors and prescription drugs are driving up premiums. California's health plans stand ready to discuss how all health care sectors—including insurers—can work to lower costs."

States take control
The health reform legislation did give $250,000 to the states to set up their own regulatory system to review health plan rate increases. So that's what two California assemblymen are trying to do.

That bill, AB 2578, by Democrats Dave Jones of Sacramento and Mike Feuer of Los Angeles, would require two state agencies to review any insurance plan rate hike of 7% or more a year, and give the agencies the option to review requested hikes of less than that.

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