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California Regulators Still Have Little Power Over Insurance Rate Hikes

CONTRA COSTA TIMES

California regulators last year won expanded authority to scrutinize health insurance rate hikes, but their continued lack of real power has consumers gearing up for a new battle with the insurance industry over rate regulation.

The new law permits regulators to conclude a rate hike is excessive, but they can only try to persuade or shame insurers into backing off.

Consumers want California to join the 36 states with some form of rate control.

The state's only attempt to use its most potent weapon -- publicly declaring a rate increase excessive -- failed when Anthem Blue Cross upped one of its premiums by 16.1 percent anyway.

Another state agency reviewing increases -- the Department of Insurance -- got them delayed, dropped or reduced in 17 percent of 300 cases, saving consumers more than $100 million.

But in a state where premiums for employer health insurance have climbed 153 percent since 2002, consumer advocates want regulators who can do more than plead and cajole.

One group has announced that within the next few days it will begin gathering signatures for a ballot initiative to set up real rate regulation.

Others want to revive a regulatory measure in the Legislature.

"There's clearly a lot more to do," said Anthony Wright, executive director of Health Access California, a statewide consumer group.

The new state law, SB 1163, requiring more insurers to document the need for rate hikes took effect Jan. 1, 2011.

Health insurance oversight in California involves two agencies: The Department of Managed Health Care oversees health maintenance organizations (HMOs), and the Department of Insurance oversees most preferred provider organizations (PPOs).

After reviewing rate hikes, the agencies can request more information, find everything to be in order, or try to embarrass an insurer by publicly declaring an increase unreasonable.

Or they can attempt to persuade an insurer to lower the request. They used this tactic last year to convince several dozen insurers to modify increases, sometimes substantially.

"We've seen rate retractions and rollbacks and rebates that have totaled hundreds of millions of dollars for California consumers," Wright said.

Jamie Court, president of Consumer Watchdog, is no fan of the new law.

"Absent the hammer, health insurers have been getting away with murder," he said. "We're seeing double-digit rate hikes and no end in sight. This was really a fig leaf."

Consumer Watchdog will attempt to qualify a November initiative that would give the state veto power over rate hikes for many insurers.

Court predicted the insurance industry could spend as much as $100 million opposing the measure.

Health Access California will continue to seek regulation through AB 52 by Assemblyman Mike Feuer, D-Los Angeles. It, too, faces a stiff fight.

Insurers and groups such as the California Medical Association, California Hospital Association and the California Chamber of Commerce opposed the bill last year. Similar measures have died four times in the Legislature.

But Feuer said he is not giving up.

"The bill has passed the Assembly and gotten past every hurdle in the state Senate except the Senate floor," he said. "I am in the process of pursuing the couple extra votes I need to get the bill to the governor's desk.

"There are few issues that are more important to working families up and down the state than this issue," he added, "and I don't give up easily."

Insurers oppose most forms of rate regulation, arguing that it would create regulatory bureaucracy that could cost $30 million a year.

Such measures would do nothing to address the real reasons for rising premiums, said Patrick Johnston, president and CEO of the California Association of Health Plans.

He cited soaring medical costs, seismic requirements for hospitals, inadequate government funding for Medi-Cal patients, and the hefty cost of medications and fancy new equipment.

Senate Bill 1163 has had the biggest impact on the state Department of Managed Health Care. Before the law, the department in most cases had no rate-review authority. Now, it receives numerous filings to scrutinize.

But last year, nothing happened when it used its biggest hammer against rate increases.

Anthem Blue Cross had announced it wanted to hike rates May 1 for 30,600 policy holders by an average of 16.1 percent.

The state agency declared the increase unreasonable, noting that it was 3 percent to 4 percent higher than plans with similar benefits.

But an Anthem spokeswoman disagreed, arguing that an actuary hired by the state had deemed the hike "not unreasonable or unjustified." Anthem proceeded without yielding a cent.

Through negotiations, the department did convince several other insurers to lower rate hikes.

"The plans have taken this very seriously -- I do believe that we have the power to influence their filings," said Dennis Balmer, a department deputy director.

The state Department of Insurance did not declare any rate hikes unreasonable last year.

"We've just been focused on using our very limited authority to convince the insurers to lower excessive rates before they go into effect," said Deputy Commissioner Janice Rocco.

Her boss, Insurance Commissioner Dave Jones, supports AB 52 to give the agency more power.

"Transparency is important, but the authority to reject excessive health insurance rate increases is really necessary in order to adequately protect consumers," Rocco said.

The Department of Insurance for a decade has reviewed rate filings for health insurance plans on the individual market. Senate Bill 1163 expanded its oversight by including other plans.

All told, the Department of Insurance reviewed about 300 rate filings in 2011 and got rate increases reduced, postponed or withdrawn for 50 of them, Rocco said.

That's not easy to do when an agency has as little authority as seen in a letter the Department of Managed Health Care sent to Kaiser last year.

Interim director Edward Heidig told Kaiser the department had identified "troubling" factors in the rate request, including a lack of substantial evidence to support it.

"Therefore, the Department respectfully reiterates its request that Kaiser significantly lowers its rate increase," his letter concluded. Kaiser eventually agreed.

Sandy Kleffman covers health for the Bay Area News Group. Contact her at 925-943-8249. Follow her at Twitter.com/skleffman.