Regulating Insurance Rate Hikes Could Be Costly

A funny thing happened on the way to passing a bill to regulate large health insurance rate hikes — it hit a wall of money.

The last hurdle in the state legislature for AB 2578 by Dave Jones (D-Sacramento) before getting its vote on the Senate floor was a quick stop in the Senate Committee for Appropriations. But on Thursday, the committee heard a cost analysis report presented by the Department of Managed Health Care that froze the legislation in committee — at least for now.

To implement the bill, the Department of Managed Health Care estimated the state would need to hire 110 high-priced actuaries, and an additional support staff of about 60 more people, at a cost of $23 million for the first year.

Those numbers boggle the mind of bill author Jones, who said all previous cost analysis didn’t begin to approach the new figures from the DMHC.

“They had no experience with rate review or rate regulation,” Jones said. “And they have significantly overestimated the costs.”

The bill was put on the shelf until the legislature gets back from its unofficial recess at the start of August. Committee chair Christine Kehoe (D-San Diego) suggested the Department of Managed Health Care and Jones need to talk further and come to a better understanding before the next appropriations hearing.

Sherrie Lowenstein, the department’s legislative director, said she can only go by the language in the bill, and it calls for an analysis of every insurance rate filing. She said there are 60,000 to 80,000 of them a year.

“It is a huge amount,” she said. “Now, when we do fiscal analysis, it is not a policy analysis. It’s just looking at what it would trigger for us as a caseload.”

Not only would the department be inundated by that many insurance rate reviews, but it just wouldn’t be possible to hire that many actuaries even if the state had the money for it, Lowenstein said. “You can’t hire 110 actuaries,” she said. “They don’t even exist. You’re looking at something completely new, and complicated.”

It’s a lot simpler than all of that, Jones said. The Department of Insurance currently regulates car insurance rate hikes, and barely requires a fraction of the actuaries the Department of Managed Health Care is asserting as necessary.

“In fact, at the Department of Insurance, much of the work is done by lower-paid rate analysts,” Jones said. “I think the problem is (the Department of Managed Health Care officials) just don’t have much experience with this.”

Jones also pointed out there is a federal pot of money to help with rate reviews, since there is certainly a cost involved. But it’s nothing close to the department’s numbers, he said. “There is always some cost in reviewing rates,” he said, “but that is a tiny amount compared to the amount of money saved by taxpayers, patients and small businesses in exorbitant health insurance rate increases.”

“Rate review, no matter how it’s structured, is going to cost a lot, and you need actuaries,” Lowenstein said. “And the way it’s currently written, it’s as if they’re saying, ‘How can we spend as much as possible?’ “

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