Insurers Criticize Proposed Cap on Profit, Administrative Costs
California health insurers say legislation that would require them to spend at least 85% of premium revenue on health benefit expenses would not address the underlying causes of rising health care costs or improve the quality of care, the Wall Street Journal reports.
The Legislature approved the bill (SB 1440) by Sen. Sheila Kuehl (D-Santa Monica) on Sunday. According to Kuehl, the measure aims to hold down rising costs for patients and employers by limiting the amount health plans can spend on "wasteful administrative costs and excessive profits."
The bill would require health insurers to maintain at least an average 85% medical loss ratio across all lines of business by 2011. Under the legislation, health plans would be allowed to subtract tax payments from their revenue and consider disease-management and nurse call lines as medical costs, rather than overhead.
OppenheimerFunds analyst Carl McDonald said that with those and other adjustments in calculations, "all plans in the state would be safely above the minimum requirement," but they would have to reconsider growth in the individual and small-group markets because of the lower loss ratios in those sectors.
Michael Kleinman, a spokesperson for WellPoint, said, "We do not like to see this kind of legislation; we think there can be some unintended consequences," adding, "We will have to modify what we're doing."
California accounts for 20% of WellPoint's members.
Aetna spokesperson Mohit Ghose said that a fixed loss ratio requirement "doesn't take into account the need to address underlying cost drivers in health care" and that until lawmakers address those issues directly, the industry will not be able to provide more affordable policies for the uninsured.
UnitedHealth Group spokesperson Tyler Mason said that health insurers supported the loss ratio requirement when it was part of Gov. Arnold Schwarzenegger's (R) failed health care reform proposal, but he added that insurers would object to the proposal without other changes to the state's health care system (Wisenberg Brin, Wall Street Journal, 9/3).
On Wednesday, Capital Public Radio's "KXJZ News" reported on the Legislature's approval of Kuehl's bill and other measures similar to elements of Gov. Schwarzenegger's health care overhaul plan (Weiss, "KXJZ News," Capital Public Radio, 9/3).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.