Bill Limiting Health Insurer Profits, Administration Moves Forward

A bill mirroring one of the key components of Gov. Arnold Schwarzenegger's (R) defeated health reform package took another step toward fruition this week when the California Assembly approved legislation limiting health insurance administrative expenses and profit to 15% of premium income.

The bill (SB 1440), by Sen. Sheila Kuehl (D-Santa Monica), requires 85% of premiums and fees received by health insurers and health plans to be spent on treatment and other benefits for patients.

Administration, profit, broker commissions and other costs would be capped at 15%, starting in 2011.

The bill, approved 41-26 in the Assembly, now goes back to the Senate for consideration of Assembly amendments.

Assembly member Hector De La Torre (D-South Gate) said administrative costs account for as much as 30% of health insurance premiums. "Health insurance is the only business where denying the customer what they paid for makes you money," De La Torre said.

Republicans argued that the limit on administrative costs could drive some health insurers out of the California market.

"By passing this legislation, we may cause millions of Californians who purchase (insurance) in individual markets to lose coverage," said Assembly member Bill Emmerson (R-Redlands). "I know that administrative costs in many plans are above the 15% level."

Schwarzenegger included the same percentage limit on administrative costs and profits in his comprehensive health care reform proposal that died earlier this year. Schwarzenegger's office said he hasn't taken a position on Kuehl's bill.

Without a budget deal, it looks like the Legislature will stay in session through the Democratic National Convention next week, working their way through bills before the Aug. 31 legislative deadline. Here's a rundown on some recent actions.