Consumer Watchdog Hails House Cost-Control Plan to Regulate Health Insurance Rates, Urges Lawmakers to Combine It With Strong 'Public Option'

November 6, 2009

Late Addition to House Health Reform Bill Should Adopt Key Details of Successful Insurance Regulation in California to Achieve Cost Controls, Says Group

WASHINGTON, Nov. 6 /PRNewswire-USNewswire/ -- Consumer Watchdog, which pioneered the nation's most successful insurance premium regulation law in California, praised Congress for including a key cost-control element in the final version of its health reform bill. Among amendments released this week is a requirement for health insurance companies to publicly justify any premium increases before they go into effect, a necessary element in containing future health care costs, said Consumer Watchdog.

The nonprofit, nonpartisan consumer advocacy group called on Congress to clarify that insurers must justify increases in their combined rates, including co-pays and deductibles, and require them to receive prior approval from state regulators before the rates go into effect. Congress must also insist that regulation be in addition to, not instead of, a publicly run option to private insurance.

"Rate regulation was the missing cost-control link in all of the Congressional bills, and this plugs a truck-sized loophole," said Jerry Flanagan, health policy director of Consumer Watchdog. "Now Congress needs to fill in some key details that will help states keep a firm lid on health insurance increases that have far outpaced increases in medical costs."

Read about California's landmark law to rein in gouging by property and casualty insurers at: http://www.consumerwatchdog.org/insurance/articles/?storyId=19888

Consumer Watchdog expressed wariness that the rate regulation proposal might become a compromise alternative to a publicly run health insurance option in the final bill, and warned against it.

"Cost control over time depends on having multiple tools," said Flanagan. "The public option, by creating a free-market competitor to private insurers, would have a broad effect. Regulations, by stopping unjustifiable attempts to raise rates for different classes of policies, are the more specific tool."

The California regulations, which cover property and casualty insurance including auto insurance, have saved California drivers $62 billion dollars over 20 years, according to a 2008 Consumer Federation of America study. The regulations also curbed rates for medical malpractice insurance, succeeding where caps on court awards in malpractice cases did not.

The House amendment

Section 104, beginning on page 3 of the amendment to H.R. 3962, provides:

(1) The Secretary of Health and Human Services, in conjunction with states, shall require health insurance companies to justify the reasons for premium rate increases prior to implementing them. The insurers are required to post the justifications on their websites.

(2) The Secretary of Health and Human Services will provide $1 billion in grants to assist states "in reviewing and if appropriate under State law, approving premium increases for health insurance coverage . . . ."

(3) Any state receiving a federal grant shall provide the federal government information about increases in premium rates. In addition, states will be required to make recommendations about whether particular health insurers should be excluded from participation in the Health Insurance Exchange "based on a pattern of excessive or unjustified premium increases."

The amendment, offered by Representative John Dingell (D-MI), is available at: http://www.kaiserhealthnews.org/Stories/2009/November/04/~/media/Files/2009/rules_comm_dingell.ashx

What's still missing from the House amendment

Consumer Watchdog, which pioneered the most successful insurance premium regulation law in the nation, Proposition 103, called for particular changes to the House bill. Specifically, the House bill should adopt key provisions of California's landmark insurance reform law, including:

    --  Mandatory prior approval, which means requiring insurers to seek
        permission from government regulators, in addition to justifying rate
        increases, before imposing the new rates.  The language in the Dingell
        amendment conditioning such prior approval on whether it is "appropriate
        under state law" should be deleted.  In its place states should be
        required to adopt Prop 103-styled prior approval in order to maximize
        saving and decrease insurance company waste and overhead.  Since 1988,
        California's Proposition 103 has saved drivers $62 billion while
        fostering a competitive and profitable insurance market.

    --  An intervenor system that allows the public to challenge unnecessary
        premium hikes.  States should also provide consumers a forum to
        challenge excessive rate increases.  Since 2003, Consumer Watchdog has
        saved the state's consumers $1.7 billion by challenging unnecessary
        premium increase and insufficient decrease requests using the public
        intervention process.

In addition to these two elements, to ensure that the reforms would be properly enforced, Proposition 103 made the state insurance commissioner an elected position accountable directly to the voters, not a political appointee.

A 2008 Consumer Federation of America report found Proposition 103 to be the nation's most effective insurance regulation and detailed the savings on the 1988 law. The report can be downloaded at: http://www.consumerfed.org/pdfs/state_auto_insurance_report.pdf. A related press release is available at: http://www.consumerwatchdog.org/insurance/articles/?storyId=19888

Download Consumer Watchdog's report detailing how rate regulation and the intervenor system could be applied to health care at: http://www.ConsumerWatchdog.org/resources/Regulate_Not_Deregulate.pdf

Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: http://www.ConsumerWatchdog.org

SOURCE Consumer Watchdog