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Aug. 17: A bill to impose mandatory rate review on health plans in California moved a step closer to passage after the Appropriations Committee advanced it to the full Senate.

The Senate committee voted 7-4 to require prior regulatory approval before health insurance premiums, co-payments or deductibles could be increased. Under A.B. 2578, health maintenance organizations and health insurers would have to follow the same rules that apply to automobile and homeowners insurance policies under 1988's Proposition 103.

The restrictions would apply to health maintenance organizations and most Blue Cross Blue Shield plans, which are regulated by the Department of Managed Health Care, as well as other insurance plans, which fall under the Department of Insurance. The bill sponsored by Assemblymen Dave Jones, D-Sacramento, and Mike Feuer, D-Los Angeles would require insurers to justify overhead costs and proposed rate increases. 

"In California, we've had positive experiences in 22 years of rate regulation," Jones said. Given "excessive, double-digit" increases in recent years, rate review is "one of the most critical missing pieces from the national health care reform legislation," he said.

Jones is the Democratic nominee for insurance commissioner. He faces Republican Mike Villines in the November general election. Prior approval makes health plans a target, but does not address ever-higher costs of care, including medical equipment and costs providers must absorb. California hospitals lost $12.2 billion in uncompensated care in 2009 due to "bad debt" charity care and underfunding of Medi-Cal, the state Medicaid program, said Jan Emerson, spokeswoman for the California Hospital Association.

"Once you regulate the health plans, then you go down the slippery slope of regulating what the hospitals and the providers may charge," she said.

While addressing costs is also important, Jones said true medical costs have been increasing 3-4%, a fraction of insurance rate increases, according to federal Department of Labor statistics.

State regulators have full authority to audit health insurers, and they do so for solvency standards and legal compliance, said Patrick Johnston, president of the California Association of Health Plans. 

Under the federal Patient Protection and Affordable Care Act, insurers will be required to justify certain increase proposals considered "unreasonable" by state regulators and the U.S. Department of Health and Human Services. 

Each state, and the District of Columbia, is eligible for a $1 million grant to work on its process for reviewing and giving approval to premium requests.

It is the initial portion of an eventual $250 million grant program to strengthen state review processes. New York Gov. David A. Paterson signed legislation in June to restore prior approval for health plans in the Empire State. prior approval of health premiums to state insurance regulation for health insurers and health maintenance organizations. Since 2000, the state has implemented file-and-use. 

The New York State Insurance Department will have the authority to review rate applications and their underlying calculations and may approve, modify or reject them. 

In July, Insurance Commissioner Steve Poizner announced that all health insurance rate filings for the individual market will be posted on the Department of Insurance website and that consumers can receive e-mail notifications of new filings. The rate filings of the state's four largest insurers will also be analyzed by an outside actuary, Poizner said.
 


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