Health reform plan will affect middle-class families adversely: Consumer Watchdog

Sep 17 2009

The new health reform plan released today by U.S. Senate Finance Committee Chairman Max Baucus (D-MT) will charge middle-class families nearly 20% of their annual income for health coverage, while letting insurance companies charge what they please for policies, said Consumer Watchdog. The consumer group, which pioneered the most successful insurance premium regulation law in the nation, today said only the extension of such regulation to health insurance can make insurance affordable -- which it must be, if Americans will be forced to buy it.

The group called on Congress to adopt health insurance rate regulation that requires prior approval of rate increases. Such regulation has saved drivers in California $62 billion on auto insurance rates since 1988, and similar savings would be expected for health insurance rates. Such regulation would control the startling health premium and out of pocket rates illustrated in a chart leaked from the Senate Finance Committee, showing yearly average out-of-pocket costs of $15,300 for a family of four making $78,000.

Americans who do not purchase insurance policies under the Baucus plan would pay up to $3,800 in penalties.

"Government cannot force families to pay more than their mortgage to purchase coverage from a for-profit insurer," said Jerry Flanagan, health policy director of Consumer Watchdog. "Yet if families paying more than 10% are automatically exempted from the law, they will still be without health care. It's an impossible bind, and tough, transparent regulation is the right start to fixing it."

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 while fostering a competitive and still profitable insurance market.

** 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 state-level commissioner accountable to the public directly for premium hikes. To ensure that the reforms would be properly enforced, Proposition 103 made the state insurance commissioner an elected position accountable directly to the voters, not a political appointee.

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:>

In addition, Consumer Watchdog in its report Regulation, Not Deregulation:

** Calls for legal accountability of health insurance companies and HMOs. The Baucus plan fails to close a loophole in existing law that bars many Americans from holding health insurance companies and HMOs financially accountable. 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.

** Explains why efforts to use health insurance cooperatives ("co-ops") as a vehicle to gut state consumer protection laws would be devastating to consumers and business owners. The Baucus plan would would open the door to deregulation of health insurance 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. The loss of state health benefit requirements could allow exclusion of preventive treatments and exams and prevent early diagnosis of disease, though apparently the state where the consumer lives would retain some authority to address market conduct, unfair trade practices, network adequacy and consumer protection standards.