Health insurers use scare tactics to block regulation of rate increases


Here’s how badly the state’s health insurance companies want to kill a bill in the Legislature giving state officials the power to put the kibosh on excessive premium increases.

Not content to fight the measure on the merits, they’ve mustered bogus facts and figures against it and tried to convince the public that a measure allowing regulators to limit premium increases will actually cost people money.

Haven’t we seen this sort of campaign before? The answer is yes, but that doesn’t mean the perpetrators shouldn’t be called on it.


The bill in question is AB 52, introduced by Assemblyman Mike Feuer (D-Los Angeles). It would prevent health insurance premium increases from going into effect without the prior approval of the commissioner of insurance or the director of the Department of Managed Health Care, who share jurisdiction over health insurers.

The bill would give insurance regulators the same prior-approval authority they were given over auto and homeowner policies by Proposition 103 in 1988. Under current law, California health insurance regulators can’t reject a rate increase even if they think it’s unreasonable — they can only try to jawbone the insurance company or shame it with a public objection.

It’s a soft cudgel, at best. At the end of April, for instance, Anthem Blue Cross raised rates for 120,000 customers an average of 16% despite a finding by the Department of Managed Health Care that the increase was unreasonable — and despite the company’s agreement to roll back a similar increase for 600,000 customers whose policies were subject to Insurance Department oversight.

“We’re hoping that some of the outrage over the recent hikes will convince people to support [the bill] in Sacramento,” Insurance Commissioner Dave Jones told me recently. “But it’s a fight.” He should know; he introduced a similar bill three times as an assemblyman, before he was elected insurance commissioner last year.

The California Assn. of Health Plans maintains that the bill won’t do anything to address the underlying drivers of healthcare costs, which it says are charges by drug companies, device manufacturers, and doctors and hospitals. The response by the other side is that even if that were so, prior approval will help ensure that insurance companies calculate and project those costs accurately and reasonably. That’s something that insurers haven’t been doing too well lately. Last year both Aetna and Anthem backed away from huge rate hikes after independent actuaries found glaring mathematical errors in their rate filings.

A study in 2009 by the New York state insurance department found that these sorts of errors, and worse, were rife under that state’s then-deregulated system, which resembled California’s toothless regime. New York found that insurers routinely under-reported such errors and refunded (retroactively) only about a third of the ill-gotten excess to policyholders. The study helped goad lawmakers there into reinstating prior approval after about 15 years without it.


As it happens, California’s health insurance lobby has tried to use New York’s experience as Exhibit A for the case against prior approval. The association contends that five of the 10 states with the highest individual healthcare premiums are subject to prior approval, with New York leading the list. There’s a problem with this claim, however: New York’s prior-approval rules went into effect only this year. In other words, New York’s high individual premiums are the result, if anything, of the absence of prior approval.

When I asked a CAHP spokeswoman where the figures came from, she said they conducted “some unique research.” That’s one way of putting it.

Much of the rest of the CAHP’s campaign against AB 52 is garden-variety scare tactics. It cites an Assembly committee analysis stating that giving regulators prior-approval capability would cost $30 million a year. The organization doesn’t mention that the expense would be covered by fees charged to the insurers; even if this were passed on to consumers, it comes to $1 a year per California insured. Would Californians find the cost worthwhile? Consider that when a public uproar forced Anthem to defer a 39% rate increase last year, the six-month delay saved consumers at least $150 million, by Anthem’s own estimate.

CAHP President Patrick Johnston contends that giving regulators the right of prior approval will “tempt” them to suppress health insurance rates for political reasons, because rate hikes might be “controversial or unaffordable for some people.” I asked what evidence Johnston had that California regulators had unfairly “suppressed” auto or homeowner premiums under Proposition 103. He couldn’t cite any. AB 52 doesn’t absolve regulators of the duty to see that insurers have sufficient revenues to cover customer claims and remain financially sound.

Anyway, you don’t see the regulated companies suffering: Mercury Group, to pick one at random, does three-quarters of its business in California in prior-approval categories such as auto and homeowners, and over the last couple of years has recorded a profit margin equivalent to more than 10% of premiums.

Johnston’s concern seems eerily similar to a point raised by some members of the Assembly appropriations committee just before it narrowly approved AB 52 last week. They seemed worried that an elected insurance commissioner might use his powers under prior approval to benefit the public interest, as opposed to placing what’s best for the health insurance industry front and center.

It’s small wonder. From 2007 through this year, for example, Anthem Blue Cross has made campaign contributions totaling nearly $5 million to candidates, parties and political action committees, according to state records. Blue Shield has contributed more than $2.3 million in the same period, and Johnston’s organization has forked over more than $500,000. Johnston himself, by the way, is a former Democratic assemblyman and state senator.


Across the country, prior approval of healthcare rates is becoming more the norm, now effective in 34 states and the District of Columbia for at least some policies, according to the Kaiser Family Foundation. The procedure closes a gap left by federal healthcare reform that leaves rate regulation to the states and provides only loosely for premium review. Once again, AB 52 provides state legislators with a chance to declare whom they really represent — their voters or their campaign donors.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.