A bill meant to ban excessive health insurance rate hikes passed the state Assembly last week and faces a fight from health insurers as it moves to the Senate.
Flickr photo by Toddhealthinsurance
What makes this law one to watch, though, are opposing yet compelling arguments for its potential to bring a windfall in savings to consumers or, perhaps, not.
The bill, by Assemblyman Dave Jones, D-Sacramento, had been like an old penny that just keeps turning up in the Capitol.
Until, that is, Anthem Blue Cross attempted to raise rates for individual consumers by 39 percent. Amid the ensuing kerfuffle, Jones called executives before lawmakers, imploring, “Have you no shame?”
He lauded passage of the law through the Assembly last week.
“Without this legislation, insurers will continue to dramatically raise health insurance premiums, putting health insurance out of the reach of millions of Californians,” Jones said in a statement.
Proponents of the law compare it to Proposition 103, a 1988 ballot measure that forced car insurers to roll back rates. It also outlawed excessive auto insurance rate hikes in line with what Jones and Assembly member Mike Feuer, D-West Hollywood, propose in AB 2578.
Prop. 103 was all but a tree that grew dollar bills for Californians, according to a 2008 report by the Consumer Federation of America.
The study found that as auto insurance premiums soared by 50 percent from 1989 to 2005 nationwide, they only went up 10 percent in California during that time.
Consumer Watchdog adjusted the numbers for inflation in a similar study, finding that the law actually caused rates to fall for 15 years ending in 2004.
The Consumer Federation also found that California auto insurers enjoy the greatest profit margins in the nation, refuting late-80s fears that the law would hobble the industry.
All told, the report says, the law saved Californians a whopping $62 billion. The report attributes the windfall to factors including drivers and the “regulatory excellence” of the 1988 law.
The rates held, it can't be argued. But why is another matter.
Patrick Johnston, president of California Association of Health Plans, said in an interview that favorable rates are better attributed to strong enforcement of drunk driving laws and seatbelt laws that led to a decline in car crashes. (His group, which represents health insurers, opposes the proposed law.)
The California Healthcare Foundation, which is funded in part by health insurers, reached the same conclusion in a 2004 policy brief written after a proposal to regulate rate hikes failed in the Legislature.
Johnston said rate regulation is not keeping premiums down in other states. New York, Massachusetts and Rhode Island all require prior approval of rate hikes. Yet they’re the top three states in terms of hefty premiums for individuals, with New York’s average premium of $6,600 coming in at twice California’s premium of nearly $3,000, according to a fact sheet compiled by CAHP.
The reason, he said, is that rate regulation does nothing to fix the root of the problem – the soaring cost of medical care.
“The costs of health insurance are directly attributable to health care, so imposing regulatory controls on rates will not lower those underlying costs,” Johnston said.
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