California needs to be able to regulate health insurance premiums

A bill to let the state block excessive health insurance premiums is running into trouble in the Senate, where critics complain about its cost, its impact on large groups and the power it could give regulators with an ax to grind. Some of those arguments are specious; some of them are worth considering. But in any event, lawmakers shouldn’t lose sight of the basic problem the bill would address: the inability of regulators to do anything but complain about unreasonable increases in premiums.

The measure, AB 52 by Assemblyman Mike Feuer (D-Los Angeles), would give the Department of Insurance the same authority to modify or reject proposed increases in health insurance premiums as it has in automobile and homeowner’s insurance. Similar power would be granted to the Department of Managed Health Care over the rates charged by HMOs.

Regulators already review rate increases for individual and small-group health coverage before they take effect — the Legislature mandated that last year. But a review alone isn’t much help for consumers who, starting in 2014, will be compelled by federal law to buy coverage regardless of the price. They will be the insurers’ captive market. And unless they’re part of an unusually large or attentive group, consumers won’t have the clout or the information needed to bargain effectively with insurers to hold down rates.

Granted, insurers have only so much control over premiums, which are being driven skyward by the rapid rise in the demand for medical treatment and the cost of drugs, devices and technology. The federal healthcare reform law tries to curb the growth of those costs, and it limits how much insurers can collect above and beyond their medical expenses. But the law leaves it to states to stop insurers from finding ways to generate excessive profits within those boundaries — a power that regulators in 34 states have, at least over some kinds of policies, but California officials do not.

AB 52 wouldn’t grant regulators carte blanche to deny any and all rate increases. The bill would require any move to modify or block rates to be supported by “substantial” evidence, and those decisions would be subject to review by the courts. Two decades of court rulings since Proposition 103, the 1988 ballot measure that regulated auto, property and casualty policies, have helped define what is and isn’t reasonable.

It’s not clear why large groups that have ample bargaining power, such as CalPERS, shouldn’t be allowed to opt out of the state’s review. But that’s an easy fix in a bill that would significantly strengthen the state’s consumer protection efforts. Lawmakers should keep it moving through the Senate and to the governor’s desk.