California lawmakers who want to go further than the newly signed federal healthcare overhaul scored a victory Tuesday when a proposal to make insurance companies justify rate hikes sailed through the Assembly's Health Committee.
The bill would put health insurers and health maintenance organizations under the same strict regulation that has covered automobile and other types of property insurance for the last two decades. It would require approval of some rate hikes by state agencies.
"Now that Congress has mandated that every American must show proof of owning a health insurance policy or face fines, California must ensure that the prices that insurers charge for coverage are fair," said Jerry Flanagan, healthcare policy director for Consumer Watchdog.
The bill, AB 2578, is similar to one the Assembly passed in 2007, only to see it die in the Senate by one vote. But this time, the bill's supporters hope that public outrage will help get the bill passed.
They believe momentum is on their side, not only because of the overhaul package President Obama signed into law Tuesday, but also because of the recent decision by Anthem Blue Cross to hike premiums as much as 39% on some individual policies.
The bill passed in the committee 11 to 3. But it faces an uncertain future as it moves further through the Legislature, where the influential insurance lobby is arguing against creating a new bureaucracy. Gov. Arnold Schwarzenegger, who would have final say if the bill gets to his desk, has not taken a position on the bill.
The measure is supported by AARP, consumer groups and labor unions, and opposed by insurance companies, the California Medical Assn. and groups that push for lower taxes.
The bill by Assemblyman Dave Jones (D-Sacramento) would force insurers to get approval for rate hikes exceeding 7% a year.
Health insurance companies and most preferred provider organizations would have to get approval from the Department of Insurance, while HMOs would have to get an OK from the Department of Managed Health Care.
The state agencies would be charged with determining that premium increases are "not excessive, inadequate or unfairly discriminatory," according to the bill.
Such oversight is needed, Jones said, because health insurance rates have been rising at a much faster pace than medical costs, which have been averaging a 4% increase annually in recent years.
Steep profits are not the reason that rates have skyrocketed, contended lobbyists for health insurance companies, who successfully opposed similar bills by Jones in 2007 and 2009.
The main cost drivers, said Anne Eowan of the Assn. of California Life and Health Insurance Cos., are hospitals, doctors and pharmaceutical companies.
"The bill is premature, and we should wait and see" what happens at the federal level, said Eowan, the group's vice president of government affairs.
Another industry representative, Bill Wehrle of nonprofit Kaiser Permanente, said that creation of new bureaucracies could be expensive for taxpayers and slow innovations in treatment and the handling of claims.
But Laurel Kaufer, a Woodland Hills mother, complained that her biggest problem was a recent 34% rate increase to $1,100 a month from her insurer, Anthem Blue Cross.
"I am required to seek prior approval before I can expect to receive coverage from my insurance company," she said. "There is no good reason why Blue Cross should be allowed to raise my rates without prior approval."