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Sacramento Bee
Jun 04, 2007 - 01:00 AM

by Aurelio Rojas, Bee Capitol Bureau

Activists' health-care remedy: Control rates

The same consumer group that spearheaded the ballot battle to regulate auto, home and other property insurers in California two decades ago is now targeting the health care industry.

With AB 1554 by Assemblyman Dave Jones, D-Sacramento, the Foundation for Taxpayer and Consumer Rights wants the Legislature to allow the state to set rates for medical coverage.

The bill would require health plans and health insurers licensed by the California Department of Managed Health Care and the California Department of Insurance to submit annual proposed rate increases for prior approval.

AB 1554 cleared an Assembly committee last week but still faces long odds in the Capitol, where health care insurers are among the biggest contributors to the campaign coffers of elected officials.

But supporters are preparing to take their cause to the ballot -- just as they did in 1988 when the Legislature declined to regulate auto and other property insurers, and voters approved Proposition 103.

Supporters estimate that landmark measure, which requires insurers to get prior rate approval from the state's insurance commissioner, has saved consumers billions of dollars while allowing insurers to make reasonable profits.

If consumer groups once again turn to the ballot, the issue of regulating health care insurers could be on the same ballot as next February's presidential primary, which promises to generate a large voter turnout.

Jamie Court, president of the Santa Monica-based foundation, is not optimistic that AB 1554 will become law. A similar bill was defeated in the Legislature in 2003.

Even if AB 1554 clears the Democratic-controlled Legislature, Court predicts Republican Gov. Arnold Schwarzenegger will veto it.

"But we know that if the Legislature won't do it, voters will, because they're tired of seeing premiums rise while insurance companies make record profits," Court said.

In order to qualify the initiative for the ballot, supporters would have to collect more than 600,000 signatures over the summer and turn them in to the secretary of state by Sept. 27.

Jones believes there is still a chance that provisions of AB 1554 will be incorporated into a package of health care bills in the Legislature.

"Our hope is that this becomes part of the final health care package that gets negotiated between the leadership (in the Legislature) and the governor," Jones said.

But Sabrina Lockhart, a spokeswoman for Schwarzenegger, said the governor "believes in a free market" and opposes regulating health care insurers.

During the debate in 2004 to reduce workers' compensation costs, Lockhart said the governor resisted rate-regulation proposals. She said his confidence in the market has been borne out by double-digit drops in premiums.

Lockhart noted that under Schwarzenegger's health care plan -- which would require all Californians to obtain coverage -- insurers would have to spend at least 85 percent of their premium revenues on medical care.

"The governor believes that requiring insurance companies to direct 85 cents of each dollar of premiums into patient care will ensure insurance companies invest more in patients," Lockhart said.

But Jones predicts the requirement might create a "perverse incentive for insurers to raise premiums."

"It could result in health insurance companies raising premiums in order to make sure they continue to get the billions of dollars of excessive profits they're currently making," he said.

A spokeswoman for the California Association of Health Plans, which represents insurers, disputed assertions that insurers are making excessive profits.

Nicole Kasabian Evans cited a 2006 study by the accounting firm of PricewaterhouseCoopers that concluded 86 percent of health care dollars go to medical services and 3 percent to profit.

The study was commissioned by an association of national health care plans.

"With medical costs growing two to three times faster than the economy, rate regulation does nothing to improve health care affordability," Evans said.

If the industry is regulated, she predicted premiums will not cover medical costs. But Court said the same economic principles that applied to Proposition 103 are germane to health care.

"If you have to ask permission from the government, and you're subject to challenges from the public, you're not as free to raise premiums in an unwarranted way," he said.

Supporters include the California Federation of Teachers, the California Employees Association, and Consumer Attorneys of California.

Among opponents are the Association of California Life & Health Insurance Companies, Blue Cross of California and the California Chamber of Commerce.

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