Consumer Watchdog highlights the flaws in the proposed Senate Finance Committee health reforms

Sep 9 2009

The consumer group that pioneered the most successful insurance premium regulation law in the nation, which has saved California drivers $62 billion on auto insurance rates since 1988, released a report today outlining the deep flaws in the proposed Senate Finance Committee health reforms. The report calls on Congress to adopt "prior approval" health insurance rate regulation and block insurance industry efforts to gut state consumer protection laws.

A "framework plan" released today by the so-called "Group of Six" Senators negotiating a health reform bill headed by Senator Max Baucus (D-MT) would open the door to gutting state laws. The plan would result in a "race to the bottom" in health care regulation by allowing insurance companies that participate in "health care compacts" to choose the weakest state law to govern all their policies, regardless of which state the policies are sold in. Currently, insurance companies must abide by the state laws of any state where they sell insurance. The Baucus plan resembles an industry proposal carried by Mike Enzi (R-WY) in 2006 discussed below.

Consumer Watchdog said that health insurance reform must include strengthened oversight of insurance companies and an assurance that consumers will be protected from price gouging, junk insurance and other unfair practices.

Download Consumer Watchdog's report, "Regulation, Not Deregulation: The Prescription for Lowering Health Costs Without Cutting Coverage (With or Without a Public Option)," at http://www.ConsumerWatchdog.org/resources/Regulate_Not_Deregulate.pdf.

The components of California's landmark property and casualty insurance regulation law, Proposition 103, include:

** A prior approval system for rates requiring insurers to seek permission from government regulators and justify rate increases. Since 1988, California's Proposition 103 has saved drivers $62 billion.

** An intervenor system that allows the public to challenge unnecessary premium hikes. Since 2003, Consumer Watchdog has saved $1.7 billion by challenging unnecessary premium increase and insufficient decrease requests using the public intervention process.

** An elected commissioner accountable to the public directly for premium hikes. To ensure that the reforms would be properly enforced, Proposition 103 made the insurance commissioner an elected position accountable directly to the voters, not to a politician who typically uses an appointment to reward the insurance industry for political support.

"Congress must require every state to adopt a similar prior approval system for health insurance rates. Any reform must require insurers to justify rate increases and allow the public to intervene," said Jerry Flanagan of Consumer Watchdog.

A 2008 Consumer Federation of America report detailing the savings of Proposition 103 can be downloaded at:http://www.consumerfed.org/pdfs/state_auto_insurance_report.pdf. A related press release is available at:>

Deregulation: Hidden Co-Op Loophole?

Republican Senator Mike Enzi (R-WY), ranking Republican member of the Senate health committee, has spoken favorably about a proposal by Senator Kent Conrad (D-N.D.) to establish health insurance cooperatives ("co-ops"), to replace the "public option" in a national health reform plan. Enzi likened the co-ops to his 2006 proposal for "association health plans," embodied in his bill S. 1955, which would have exempted health policies from oversight by state laws and courts. The measure failed in the U.S. Senate.

The major problems of the Enzi approach to health insurance co-ops include:

** Loss of state benefit mandates would allow exclusion of preventive treatments and exams, prevent early diagnosis of disease and evade Patient Bill of Rights laws passed in nearly every state. Denying access to such basic preventive care makes treatment more costly to the policyholder and ultimately to taxpayers, who pick up the bill when individuals cannot pay outrageous out-of-pocket costs.

** State laws providing consumers the right to appeal a coverage denial to an independent panel of physicians, a right to a second opinion, and assistance from state regulators when coverage is denied would all be lost under the Enzi approach.

** Individual patients who currently have the ability to hold insurers financially accountable for injuries caused by the denial or delay of necessary care would lose those rights if they joined the Enzi co-op.

Legal Accountability: The Missing Link

The Consumer Watchdog report also discusses the need to increase the legal accountability of health insurance companies, a concept supported by Congressional Democrats in 2001 and championed by Senator Edward Kennedy. A 2001 bill authored by Kennedy passed the Senate but died in the House.

Currently, for patients who receive health coverage through a private employer, HMOs and health insurers face no financial consequences for mishandling claims. Under the Employee Retirement Income Security Act (ERISA), lawsuits are removed to federal court where victims can only recover the cost of the procedure or service denied in the first place -- no damages or penalties are allowed. As a result, HMOs and insurers are largely free to deny access to care without fear of reprisal or financial consequences.

On June 19, 2001, Senator Kennedy gave his opening speech to Congress on S. 1052, which would have allowed patients to hold health insurers financially accountable when they cause harm. Kennedy told his Senate colleagues:

"Patients should have the right to hold their HMO accountable in court when its negligence causes the injury or death of a patient. No other industry in America enjoys immunity from accountability for its actions, and the insurance industry does not deserve it either. Few, if any, provisions will do more to guarantee that your HMO does the right thing than the knowledge that it can be sued if it does the wrong thing."

However, none of the health reform bills provide legal accountability of health insurers.