Rate review bill advances in California

A California state panel passed a bill Tuesday that would enable the state to block health plans from raising their rates — a policy that several states are considering because the federal government does not have that power. Consumer advocates say they’re optimistic about the bill’s chances despite past defeats, in part because of healthcare reform’s requirement that all Americans buy insurance.

The bill would require the state insurance commissioner to approve all rate increases before they take effect. It passed the state Assembly’s health committee Tuesday afternoon by a 12-5 vote. The next step, according to supporters, is a fiscal committee, followed by the Assembly floor.

Insurers in California must file their rates with the state insurance commissioner, but the office has no legal authority to approve or disapprove of any increases.

Sen. Dianne Feinstein (D-Calif.) and Rep. Jan Schakowsky (D-Ill.) pressed hard during the healthcare reform debate to give the federal government the power to reject insurers' premium increases, to no avail. They have since introduced stand-alone legislation.

The federal law does allow the Health and Human Services Department to demand that insurers justify certain rate hikes, but it does not give regulators the ability to stop those increases from taking effect. In the absence of that authority, rate review falls to the states — some of which have embraced it more warmly than others.

HHS awarded an initial round of $1 million rate review grants to every state that applied, though department officials have said future awards will require a more rigorous application with tougher metrics for demonstrating a tangible plan to strengthen rate review. Some states said in their applications that they would consider legislation like California’s, giving them the power to review all rates before they take effect. A handful of other states, including Massachusetts, already have prior-approval laws on the books but have rarely invoked their power to block rate hikes from taking effect.

In California, public pressure — including criticism from the White House — led the state’s Blue Shield plan to delay a proposed rate increase last month. But Carmen Balber, Washington director for the advocacy group Consumer Watchdog, said Blue Shield customers in the state have still seen cumulative rate increases as high as 86 percent over the past two years, and that giving state officials the power to review increases before they take effect is the only way to prevent such hikes.

Insurers have strongly resisted most rate review proposals, including bills to establish federal review, while agreeing that some form of disclosure would bolster their argument that rising premiums have less to do with profits than with rising payments to doctors, hospitals and drugmakers. 

The California Association of Health Plans criticized the California bill as unnecessary. 

“At the same time the Legislature is being forced to make deep spending cuts in essential programs, (this bill) will create an expensive and expansive new bureaucracy in the offices of the state insurance regulators and impose burdensome new requirements that will further increase the cost of coverage,” the group said in a statement Tuesday.

Clarification: This post was updated at 6:25 p.m. to clarify which plan delayed a proposed rate increase.