Health insurance: Halting arbitrary premium hikes

A bill to let state regulators block unreasonable health insurance premium hikes is running into a potential roadblock in the Senate Health Committee. At a hearing last week, Chairman Ed Hernandez (D-West Covina), an optometrist, said he was concerned that the bill would make it harder for the poorest Californians to obtain medical care. That’s the California Medical Assn.’s critique, and it mischaracterizes how rate regulation would work.

According to Hernandez, the bill — AB 52 by Assemblyman Mike Feuer (D-Los Angeles) — threatens to make it financially impossible for a growing number of doctors and hospitals to treat the low-income Californians who are covered by Medi-Cal. The state pays so little for their services that healthcare providers try to offset the cost of treating Medi-Cal patients by negotiating for higher fees from private insurers. By squeezing insurers’ profits, AB 52 could lead insurers to reduce payments to providers, Hernandez suggested, cutting off the cross-subsidies that sustain Medi-Cal.

But this sort of cost-shifting is the norm across the country — as is rate regulation, which is the law of the land in 34 states and the District of Columbia. The two aren’t mutually exclusive. Rate regulation focuses on the profits insurers generate after they’ve paid healthcare providers for the services they render.

Another criticism at the hearing was that AB 52 wouldn’t slow the increases in medical costs and the demand for care that are driving up insurance premiums. Congress addressed those issues in last year’s healthcare reform bill, although there’s more work to be done on both fronts. What AB 52 tries to do is provide some assurance to consumers that premiums won’t go up arbitrarily or unreasonably. That’s an important safeguard in light of the looming federal requirement that all American adults carry insurance starting in 2014.

Hernandez’ concern about doctors and hospitals abandoning Medi-Cal is legitimate. The real issue there, however, isn’t AB 52. It’s the rock-bottom rates the state pays for Medi-Cal services, which the Legislature reduced by an additional 10% in March. Lawmakers shouldn’t use that problem as an excuse to let insurers overcharge their soon-to-be-captive customers.