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Leno/Schwarzenegger Bill Uses Insurance Industry's Chosen Language For Evaluating Premium Hikes

Santa Monica, CA – Health insurance companies pursuing rate hikes in California received a boost yesterday with the signing of SB 1163 by Senator Mark Leno (San Francisco).  The bill, amended in the final days of the 2010 legislative session, establishes that health insurance premiums must be "actuarially sound," a standard preferred by insurance companies because it allows companies to raise rates virtually without restraint.Leno/Schwarzenegger Bill Uses Insurance Industry's Chosen Language For Evaluating Premium Hikes

Santa Monica, CA – Health insurance companies pursuing rate hikes in California received a boost yesterday with the signing of SB 1163 by Senator Mark Leno (San Francisco).  The bill, amended in the final days of the 2010 legislative session, establishes that health insurance premiums must be "actuarially sound," a standard preferred by insurance companies because it allows companies to raise rates virtually without restraint.
 
In an op-ed written last month, the health insurance industry's top lobbyist, Karen Ignani, called on states not to regulate rates and instead accept "[r]ates that are actuarially justified,"* which is the same as the "actuarially sound" scheme in the Leno bill. Actuarial soundness is not a real standard but a subjective analysis that can be used to allow any rate hike.  The Leno bill gives insurers a legal justification for rates that would otherwise be excessive under a prior approval rate regulation system such as the Prop 103-rules that regulate car insurance rates in California.
 
"Governor Schwarzenegger and Senator Leno teamed up to make it easier for health insurance companies to justify rate hike after rate hike," said Consumer Watchdog Executive Director Doug Heller.  "By 2014 every Californian will be forced to buy health insurance and this bill helps insurance companies while leaving consumers unprotected."
 
Before Senator Leno added his last minute amendments to SB 1163, lawmakers were focused on AB 2578 (Jones/Feuer), which would have barred excessive rate hikes by insurers and regulated health insurance premiums much the same as auto and home insurance rates are currently regulated under California's voter-approved Prop 103. Since 1988, Prop 103 has saved California drivers more than $62 billion on auto insurance alone, according to a 2008 study by the Consumer Federation of America.  A massive lobbying effort by health insurers defeated AB 2578 and the industry cleared the path for the passage of Leno's SB 1163.
 
"The decision in Sacramento to go with the insurance companies' anti-regulation scheme rather than a proven system of insurance company accountability will cost Californians billions of dollars in higher health insurance premiums," concluded Heller.
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* September 2, 2010, National Journal, http://bit.ly/adGMWV

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Consumer Watchdog is a nonpartisan, nonprofit organization with offices in California and Washington, DC and on the web at http://www.ConsumerWatchdog.org.