Reform Bill Pushes Insurance Buttons

The California Legislature is working on many bills dealing with national health care reform — from major undertakings like setting up a health benefits exchange to more esoteric ones, like guaranteeing timely response to autism grievances.

Some generate hot debate, such as the give-and-take over proposed insurance changes during an Assembly Health Committee hearing this week.

At issue was SB 890 by Elaine Alquist (D-Santa Clara), which has three main provisions.

It requires insurers in the individual coverage market to make “certain standard benefit plan designs” available in five coverage categories and to stop issuing other benefit plan designs.

It also would allow individuals to transfer on a guarantee-issue basis to another benefit plan design. It would create an individual insurance market reform commission that would review and suggest changes to those standard benefits.

The bill would also require two agencies — the Department of Insurance and the Department of Managed Health Care — to adopt regulations based on those suggestions. The commission also would establish a methodology for the graduation of risk into three specified categories and would require plans and insurers in the individual market to set rates consistent with this methodology.

The new commission would have authority over health insurance rates and benefits, and the state board would have input into the complex computation of those rates and benefits.

That rankles the health insurance industry.

Insurers take issue with the provision about switching plans, for instance. A representative of Blue Shield, which has high-end providers in its network like Stanford and UCSF medical centers, said that everyone who gets sick will want to switch to a PPO that allows access to those higher-end facilities.

“You’re going to attract sick people, that’s all there is to it,” Mark Weideman of Blue Shield said. “It is our experience, when people get sick, they do want to switch to a PPO that has the best providers. You want access to Stanford, and that is our business experience.”

That exposes Blue Shield to the risk of paying out for large medical bills, Weideman said, without the benefit of having a huge pool of non-sick patients to make up for that.

“You can’t just leave the market unabated,” he said. “I understand you want portability (to allow patients to switch plans easily). I understand there are timing issues (because of the 2014 deadline for national health reform). But that’s not a reason to implement policy.”

Bill author Alquist said she is open to the idea of addressing those risk issues, but that it’s extremely complicated, and it would add a huge layer of complexity to the legislation.

“I’m not opposed to doing risk adjustment,” Alquist said. “But that requires a lot of staff time to do it right.”

Kaiser Permanente is one of the insurers that favors the new law. The concerns about possible trends that might develop are real concerns, a Kaiser representative said — but they’re not supported by evidence.

“Look, we don’t want a lot of bad risk coming to us, either,” Kaiser’s Bill Wehrle said. “It’s a fair thing to be concerned about. But we’d rather manage the risk that is posed, rather than the risk that may or may not develop.”

Committee member Ted Gaines (R-Roseville) said the risk will remain unknown until the structure of the national reform is more defined. He said it’s risky to pass legislation now, without knowing specifically how it will affect the health insurance market.

“My question is, how do you pay for it?,” Gaines said. “My fear is, you squeeze profit out of the health insurance industry to the point where you have to go to single payer, and I’m reluctant to have government-run health care.”

The health committee approved the bill, and it is headed to the Assembly Committee on Appropriations.

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