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Read Making a Killing

home / healthcare / in the media

The Daily News of Los Angeles
May 04, 2004

by Evan Pondel, Staff Writer

Lawmakers eye limits on health care profits;

Health profits' limits considered
California lawmakers are attempting to hold health care companies accountable for exorbitant profits, using regulations on the auto insurance industry as a guide.

The Senate Health and Human Services Committee will vote today whether a state governing body should approve rate increases. The auto insurance industry is currently regulated by the insurance commissioner, a process legislators would like to emulate in the health care industry. The impetus: health maintenance organizations reported a 52 percent increase in profits for the first nine months of 2003 compared with the same period in 2002, according Weiss Ratings Inc. in Jupiter, Fla.

"We are concerned about excessive costs. And we feel rate approval is a good way to address excessive HMO rates," said Steve Suchil, principal consultant to state Senator Deborah Ortiz, D-Sacramento.

Talk of regulating health care premiums similar to auto insurance rates isn't new. Legislators have long prodded California Insurance Commissioner John Garamendi to sign off on rate regulation for the health care industry. But the morass of paper work and extra levels of bureaucracy are usually the arguments opposing such a move.

Suchil said this time is different, though. The language in Ortiz's bill is more defined, eliminating any concern that a new law would spawn a legislative nightmare. "But my guess is the Republicans are still going to vote no," he said.

The California Chamber of Commerce has already expressed opposition to the bill because it fails to address cost drivers in the health care system which include rising pharmaceutical expenses, technological changes, hospital consolidation and a tight labor market for doctors and nurses.

At the same time, "rate regulation ... could lead to many unintended consequences including higher costs, fewer services, compromised quality of care and ultimately less consumer choice," the chamber said in a recent letter addressed to Ortiz.

Consumer advocates have shown strong support of the bill. The Foundation for Taxpayer and Consumer Rights issued a press release Monday detailing the lobbying efforts of health care companies attempting to woo legislators. California health insurers paid lobbyists $1 million to influence politicians in the first three months of 2004, according to the foundation.

"Obviously, health care is important, and you need to regulate it like a utility," said Jerry Flanagan, lead advocate on health care reform for the foundation. "Because the market is uncompetitive there is no incentive for efficiency. If the state steps in we have a much better chance of controlling excessive costs."

Legislators are more inclined to focus on health care now that workers' compensation reform is under way. Many employers are concerned SB 2 -- requiring companies to provide some form of health insurance for employees -- will further drag on their profits. Though the bill is still several years from implementation, Flanagan said there is a dire need to regulate health insurance premiums.

Legislators are using Proposition 103, which regulated the auto insurance industry more than a decade ago, as a guide for regulating health plans. Auto insurance rates in California have declined 22 percent since Proposition 103 went into effect, Flanagan said.

Many health care companies are responding to cost concerns by offering more products. Specifically, preventive care products are becoming more cost-effective for managed care companies as they prevent future health complications.

"These companies are realizing that one size doesn't always fit all," said Donna O'Rourke, a senior financial analyst at Weiss Ratings. "But there is still a lot of consolidation in the industry. And I think it would give the consumer more comfort if the industry was regulated. Especially when people think these companies are just raising rates so executives can fly in their jets."

Others argue that health care companies need to focus on greater communication with the doctors and hospitals that are actually distilling care.

"The system is much more complex than rate regulation, which is just going to drive more companies out of the state.," said Sara Lee, spokeswoman for the California Chamber of Commerce.

If the bill is approved in committee Wednesday it then faces a series of votes both by the Senate and Assembly. Should it survive, legislators expect the bill's implementation by 2006.

IF SB 1349 PASSES... The bill would require the California Insurance Commissioner to approve rate increases for health plans.

The Department of Insurance would have the authority to ensure the fiscal soundness and solvency of health plans.

The Department of Managed Health Care would be required to transfer certain functions of authority to the Department of Insurance.
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Contact the author Evan Pondel at: (818) 713-3662 or evan.pondel@dailynews.com



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