Californians have saved $349 million on health insurance under a rate review process established in 2011, according to a report from the California Public Interest Research Group.
However, the report released last month also shows that almost one million Californians paid higher premiums due to rate hikes state officials deemed “unreasonable.”
The CalPIRG report, billed as the first comprehensive analysis of the rate review program for the individual and small group markets since the program’s inception, comes as legislators consider a new proposal (SB 1182) to expand rate review to large group plans and as California voters begin to hear arguments for and against a fall ballot measure to give California’s state insurance commissioner the authority to reject premium increases considered unreasonable.
“We wanted to do this analysis now in part because there is legislation proposed to expand rate review and because of the ballot measure. The more information we can get into people’s hands, the better,” said Emily Rusch, state director of CalPIRG, a not-for-profit, non-partisan organization based in San Francisco.
Key Findings Show Limited Progress
California’s 2011 law calls for health insurers to publicly justify proposed rate increases in small group and individual plans. Depending on the type of insurance, insurers must submit proposed increases to either the Department of Managed Health Care or the Department of Insurance. Agency actuaries review proposals and determine if increases are reasonable. Regulators post proposals online and invite public comment. Regulators can object to increases they consider unreasonable, but they have no authority to prevent insurers from proceeding.
The CalPIRG report’s key findings include:
- Insurers have filed 369 proposed rate changes in the individual and small group markets over the past three years;
- Insurers voluntarily reduced or withdrew 44 proposed rate hikes as a result of objections raised in the rate review process;
- Despite regulators declaring premium hikes unreasonable, insurers moved forward with rate increases at least 14 times, affecting almost one million Californians;
- An estimated 1.3 million Californians benefited from reduced or withdrawn rate increases in each of the first three full years of rate review; and
- According to estimates by state regulators, California small businesses and individual consumers have saved about $349 million because of rate review.
“These numbers show that Californians have already saved millions of dollars on health insurance premiums thanks to rate review, but they also show that too many consumers and small business are still getting stuck with unreasonable rate hikes,” said CALPIRG’s Zach Weinstein, one of the report’s authors.
More Regulatory Authority Proposed
The California Legislature is considering a bill that would expand the rate review process into the large group market. SB 1182 by Sen. Mark Leno (D-San Francisco) would require insurers to submit detailed, specific information to the state if proposed rates exceed the prior year’s rate by 5%. Health plans would also be required to provide specified data on claims to large employers and multi-employer trusts, at their request and free of charge.
Proponents contend increased transparency in the large employer market — which represents the largest segment of insured Californians — will provide large purchasers more information to determine what is driving rate increases and may help develop strategies to slow or stop the increase in costs.
Leno’s bill is scheduled to be heard this week in the Senate Appropriations Committee.
Another proposal to help curb the rise in health insurance costs — this one with a little more clout — will be put before California voters in November. A proposition put together by Consumer Watchdog and supported by state Insurance Commissioner Dave Jones, would give the Department of Insurance veto power over proposed rate increases it deems unreasonable.
The Legislature has tried and failed a couple times to get a bill through that would do the same thing. Now the issue is going directly to voters. A proposition number will be assigned to the initiative next month.
CalPIRG researchers did not favor one form of regulatory authority over the other.
“We think it would be better to have both,” Rusch said. “I believe we should expand the rate review process to the large group market because there is evidence to show review has had an impact. But clearly, transparency alone isn’t enough,” Rusch said. “At least 14 times so far insurers have moved forward with increased prices that regulators thought weren’t justified.”
The CalPIRG report includes several policy recommendations, the top two of which are extending rate review to large groups and giving regulators authority to modify or deny premium hikes.
“Millions of Californians and small business owners purchase insurance for themselves or their employees in the large group market,” Weinstein said. “These consumers should be covered by the rate review process as well. Regulators also need additional authority to reject unreasonable rate hikes.”
The report’s policy recommendations also included calls for insurers to reduce waste, improve coverage and tie rate increases to administrative costs.
“Rate review should protect consumers from rates based on excessive or unjustified overhead expenses,” the report said. “Insurers should itemize their administrative expenses, and justify any increase exceeding the rate of inflation. We recommend that administrative costs be reported on a per-member, per-month basis,” the report said.
In calling for insurers to cut waste and improve care, the report concluded: “In addition to cutting their own administrative waste, carriers have an important role to play in cutting waste and improving care in the health care delivery system. By encouraging providers in their networks to prioritize quality care that cuts cost — such as prevention, patient safety, coordination of care and effective disease management — and by negotiating lower prices, carriers can help slow the increase in medical costs and improve the health of their enrollees. Insurance companies should be required to report what strategies they are using to improve care and cut waste. With that information, California can use rate review as a tool to ensure insurers are doing everything they can to cut waste and improve care before they raise premiums.”