New system for health insurance rates a bad idea

By CMTA Staff

Capitol Update, May 6, 2011

The California Assembly is considering a bill which imposes a new health insurance rate regulatory system. Proponents of AB 52 (Mike Feuer, D-Los Angeles) argue that excessive rates impact access to care.  However, AB 52 will not cure the underlying problems in the health care system nor will it control the soaring cost of medical bills that are driving up insurance premium prices.

Health insurance rates depend largely on the cost of health care because the lion’s share of premiums are spent on medical bills: 87 cents out of every $1 in insurance premiums go to hospitals, doctors, labs, prescription drugs and other medical expenses.

In addition, AB 52 is not needed because new federal and state laws now impose limits on health insurance premiums and require rate review. The new federal health care law requires 80 to 85 cents out of every $1 in premiums be spent on medical care. If the insurers don’t meet these requirements, they will be required to pay a rebate to policyholders.

Experience in other states clearly demonstrates that the vast regulatory structure AB 52 imposes does not save money.  Four out of the five states with the highest premiums in the individual market impose price controls on rates. Obviously, insurance prices are dictated by the unique make-up of the market in each of those states and other rules—not by the type of rate regulation AB 52 proposes.

AB 52 proponents inappropriately assert government should regulate medical coverage the same way it does car insurance—even though the underlying costs and the coverage provided are radically different.

At the same time medical spending has grown, the cost of insuring a car has declined. Better-built vehicles, safer roadways and tougher drunken driving and mandatory seatbelt laws resulted in fewer costly accidents, deaths and injuries. In addition, a Supreme Court ruling lowered costs by limiting third-party lawsuits.

While automobile insurance only covers costs associated with accidents and theft, health plans pay for medical care year-round, whether you’re sick or well. Health care coverage can range from routine doctor visits and daily prescription medication to emergency surgeries and long-term treatments for diseases such as cancer.

CMTA will continue to work to find real solutions to lower medical costs and make health care insurance affordable for all Californians.

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