National freeze on health insurance rates needed

Harvey Rosenfield, author of California's landmark insurance regulation Proposition 103—recognized as the most successful insurance regulation in the country—was joined today by people struggling to pay for health insurance in calling on President Obama and Congress to impose a national freeze on health insurance rates as part of the final round of votes on reform. Consumers must have a breather from yearly premium hikes like the 39% increase planned by Anthem Blue Cross, said Consumer Watchdog, which Rosenfield founded.

"The audacity of Anthem Blue Cross caught everyone's attention, but other major health insurance companies are raising rates just as high or higher, forcing more Americans to go without insurance or settle for skeletal policies," said Rosenfield. "The industry has proven that it will do anything to please Wall Street, no matter what the harm is to families on Main Street. The only cure is major, comprehensive regulation of what insurers can charge."

Rosenfield called for a freeze of health insurance rates at current levels or below until modest health insurance rate regulation requirements of the United States Senate bill are expanded and implemented to:

* Require regulators to grant prior approval of rate changes before they may be implemented

* Guarantee the public's right to intervene to further reduce rates

* Increase federal grants to states for development of regulations

* Publish strong federal fallback regulations to take effect in states that do not adopt effective prior approval regulation

* Require consumer premium refunds if rates that have already gone into effect are later found to be excessive

Price-hike victims from Washington D.C., California, Pennsylvania, and Illinois talked about the human cost of doing nothing:

"The closest I've ever come to a heart attack was when I opened the letter from CareFirst Blue Cross informing me of a 62% increase in premiums, which according to District of Columbia regulators is the highest increase received by any individual policy holder in our nation's capital," said Kenneth Rinzler, a Washington immigration attorney. "It's even more amazing when one considers that I am a healthy individual with no adverse medical conditions."

Regulators in Washington enacted emergency legislation putting a freeze, retroactive to January 1 and effective for the next 90 days, on such unconscionable increases. "I would like to see more effective state and Federal government regulation in this area," added Rinzler.

Californian Mary Feller, whose individual policy is set to spike 39%, said "I feel scammed by Anthem Blue Cross of California. Using a corporate shell game and Draconian underwriting rules, they've trapped my family in a plan with costs that are spiraling out of control. Blue Cross is using these unethical and illegal practices to force my family and others into plans with fewer benefits and much higher out of pocket costs. It's time to stop these unfair practices!"

Feller is participating in Consumer Watchdog's lawsuit against Anthem Blue Cross of California over some of the rate increases.

How California Law Works

California's landmark "prior approval" rate regulation for auto, home and business insurance, Proposition 103, has saved drivers in California $62 billion since 1988, and is a model for national health insurance regulatory reform. (Proposition 103 does not apply to California health insurers). To read more, download a 2008 Consumer Federation of America report at: http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/state_auto_insurance_report.pdf

"Prior approval" regulation would help contain health insurance rate increases by requiring insurers to justify proposed increases before raising rates and allowing thorough scrutiny of insurance company finances. For example, such regulation would require Anthem Blue Cross's California affiliate to open its books to scrutiny by the public and independent actuaries and explain why the recent 39% rate increase was necessary, in light of the fact that the company has transferred $4.8 billion in dividends to parent company WellPoint Inc. since the company merged in 2004 with Anthem. The California insurer maintains a surplus of $1 billion more than the law requires for financial safety, and has spent billions on other Wellpoint-affiliated companies for service contracts. Read more about Consumer Watchdog's analysis of Anthem Blue Cross's profit transfers, and a chart of all known transfers since 2003, at:>

Elements of Effective Health Insurance Regulation

1. Require prior approval of rate changes by state regulators

California's Proposition 103 requires insurers to be transparent about how their rates are developed and requires "prior approval" by the state Department of Insurance before a property casualty insurance premium is changed. The elected Insurance Commissioner is required by law to reject excessive premium increases. The Insurance Commissioner has the authority to set standards governing the assumptions insurers make in setting rates. The commissioner may:

* Cap the company's profit ("rate of return").

* Establish ceilings for executive salaries and set an overall limit on expenses equal to the industry average, rewarding insurers who operate more efficiently with a higher rate of return. Expenses in excess of the limit cannot be included in the rate.

* Prohibit insurers from engaging in bookkeeping practices that inflate their claims losses.

* Limit the amount insurers can set aside as surplus and reserves.

* Forbid insurers from passing through to consumers' insurance rates the costs of the industry's lobbying, political contributions, institutional advertising, the unsuccessful defense of discrimination cases, bad faith damage awards, and fines or penalties.

2. Guarantee the public's right to intervene to further reduce rates

To encourage public participation in the implementation and enforcement of the insurance laws, California consumers have the right under Proposition 103 to petition for a formal public hearing or intervene in insurance matters before the state Department of Insurance and the courts. Since 2003, Consumer Watchdog has saved the state's consumers $1.7 billion by challenging unnecessary premium increases using the public intervention process.

The Commissioner must respond to any petition for hearing filed within 45 days of the public notice. If a rate application seeks a change (increase or decrease) of less than 7% for personal lines or less than 15% for commercial lines, the Commissioner's decision to grant a hearing is discretionary, but if the application seeks a rate change of more than 7% for personal lines or 15% for commercial lines and the petition is filed within 45 days of the public notice, the Commissioner must hold a public hearing.

A member of the public who takes advantage of this right to participate in insurance matters, either in the courts or before the California Department of Insurance, may seek compensation for "reasonable" advocacy and witness fees, so long as that person represents the interests of consumers and makes a "substantial contribution" to the resulting rate order. This ensures competent, professional representation of consumers at such public hearings.

3. Increase federal grants to states for development of regulations

The U.S. Senate bill currently directs the Secretary of Health and Human Services to provide $250 million in grants to assist states "in reviewing and, if appropriate under State law, approving premium increases for health insurance coverage..." The U.S. House of Representatives bill provides $1 billion in such state grants.

The language conditioning such approval on whether it is "appropriate under state law" should be deleted. In its place, states should be required to adopt Prop 103-styled prior public review and approval in order to maximize savings and decrease insurance company waste and overhead. Federal grants provided under the U.S. Senate bill should be increased to $1 billion to help states institute regulation more swiftly.

4. Make states responsible for regulation, but publish strong federal fallback regulations to take effect in states that do not adopt effective prior approval regulation

Existing federal health care laws provide a model for a federal-state partnership rather than federal pre-emption of more protective state standards and enforcement duties. Medicaid, HIPAA, COBRA, and the CHIPP program for children's health insurance all provide minimum federal standards and funding levels but allow states to fit the federal program to local needs, provide enforcement, and adopt regulations not envisioned by federal law.

States have traditionally been the laboratories of innovation in health care policy and insurance reform. Instead of taking away regulatory power from the states, Congress should recognize and promote successful state insurance regulation modeled on California's landmark insurance regulation initiative, Proposition 103. The federal government should require every state to adopt health insurance premium regulation similar to California's auto and liability regulation, requiring government approval for premium increases and decreases, as well as the opportunity for public hearings on the necessity of rate increases.

However, should states fail to adopt effective health care rate regulation systems, the federal government should implement a federal system to review rates in those states until the states adopt and implement effective regulation.

5. Require consumer premium refunds if rates that have already gone into effect are later found to be excessive

In order to protect consumers during the transition to the prior approval system, and to offset the rate increases during the election year prior to its adoption in 1988, Proposition 103 froze automobile and other property-casualty insurance rates and premiums at 80% of the 1987 levels for one year. The 20% rollback avoided "locking in" the excessive rates of the preceding years, during which time insurance rates rose well in excess of the inflation rate. Insurance companies eventually issued over $1.4 billion in rollback refunds to policyholders.

New federally required regulation should similarly avoid locking in excessive rate increases like those already imposed by Anthem Blue Cross and require consumer premium refunds if rates that have already gone into effect are later found to be excessive.