Homestoryvs. Insurers › Prior Approval for Health Policies Advances in California

News Story

Prior Approval for Health Policies Advances in California

SACRAMENTO, Calif. -- Health insurance plans in California would have to submit their rates for prior approval under legislation advanced by the Assembly Health Committee.

Sponsored by Assemblymen Dave Jones, D-Sacramento and Mike Feuer, D-Los Angeles, A.B. 2578 would require health maintenance organizations and health insurers to follow the same rules that apply to personal lines products under 1988's Proposition 103. Insurers would be required to justify overhead costs and proposed rate increases.

Approved by the committee March 23, the legislation does nothing to address the reasons behind health insurance increases, the cost of medical services and equipment, Nicole Kasabian Evans, vice president of communications for the California Association of Health Plans, told BestWire. "Health care is expensive and there's no denying that," she said.

HMOs and health insurers would need to receive approval from the Department of Managed Health Care or the Department of Insurance for proposed rate increases. Premiums, co-payments and deductibles would require prior approval.

Rate regulation would be a distraction and could hurt insurers and consumers, Evans said. "You don't want an underfunded insurance market," she said.

Consumer Watchdog welcomed the bill and provisions that would allow consumers to intervene in the approval process. "Now that Congress has mandated that every American must show proof of owning a health insurance policy or face tax fines, California must ensure that the prices that insurers charge for coverage are fair," testified Jerry Flanagan, the advocacy group's health care policy director.

Consumer Watchdog filed a class-action lawsuit against Anthem Blue Cross of California, alleging the company's strategy in deploying an average 25% rate increase for individual plan customers -- with some rate hikes as high as 39% -- violates state law. It accused Anthem of violating state law in that it did not pool existing enrollees with other open blocks to determine new rates or offer alternative coverage with comparable benefits (BestWire, March 3, 2010).

Jones, chairman of the health committee, held a hearing last month on Anthem's proposed rate hikes, which the WellPoint Inc. (NYSE: WLP) subsidiary delayed until May 1. Insurance Commissioner Steve Poizner said a California Department of Insurance investigation of Anthem has uncovered more than 700 violations of state law in the company's claims handling practices  an outcome that could lead to millions of dollars in fines.

Contact the author, Sean P. Carr, Washington Correspondent, at: sean.carr@ambest.com