Health Insurance Premium Regulation Bid Draws Criticism

Barger & Wolen partners Richard De La Mora and Richard Hopkins were both quoted in a Nov. 14, 2013, Daily Journal article, Hospital insurance premium regulations bid draws criticism, about a proposed ballot initiative intended to regulate insurance premiums and how it could actually end up leading to narrower networks and fewer choices for consumers.

The ballot initiative proposes to give California's Insurance Commissioner Dave Jones the ability to regulate health insurers' premiums by expanding Proposition 103 to include health insurers. Passed in 1988, Proposition 103 currently applies to property and casualty insurers.

Some attorneys are concerned that in an effort to create more affordable healthcare, the initiative could lead to insurers having to leave the market and hospitals having to drop out of networks.

“Hospitals are constantly pushing for higher and higher [compensation],” De La Mora said.

De La Mora told the paper he was also concerned that the proposition would lead to a complicated process for determining how to best regulate the industry.

“When Prop. 103 [went] into effect, it took years to figure out what it meant, and the result was a formula” for rate regulation, he said.

Hopkins told the paper that plans on California's health exchange, which was developed in response to the passage of the federal Affordable Care Act, indicate that insurers have developed more tightly brokered relationships between themselves and providers.

“If everyone can buy insurance regardless of preexisting conditions [which Obamacare requires], you have to find a way of managing the cost of health care being provided,” including closer payer/provider arrangements, he said.


Update: California Health Insurance Initiative Will Be on the Ballot in November 2014

by Larry Golub

On June 28, we reported that a proposed initiative that would bring prior approval of rates for health insurance to California had failed to qualify for the November 2012 California ballot. 

An earlier blog addressed in more detail that the the initiative would have:

  1. given the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012;
  2. required health insurers’ rate applications to be accompanied by a sworn statement by the insurer’s chief executive officer declaring that the contents of the application were accurate and complied in all respects with California law; and
  3. required health insurers to pay refunds with interest if the Commissioner determined that the company’s rates were excessive.

While the initiative failed to qualify for the November 2012 ballot, we observed that the backers of the initiative were seeking to obtain the requisite number of valid signatures to place the initiative on the next general election ballot in November 2014.

According to the Secretary of State, on August 23, 2012, the initiative qualified for the general election to occur on November 4, 2014.

This will ensure plenty of time for both sides to present to the California electorate their arguments in favor of and against the as-of-yet un-numbered proposition.  We will continue to update developments on this ballot initiative.    

Concerned About Excessive Rates, California Insurance Commissioner Requests Rate Filings from Medical Malpractice Carriers

On February 17, 2011, California Insurance Commissioner David Jones announced in a press release that the California Department of Insurance had contacted several unnamed medical malpractice insurers to raise concerns about excessive rates and request that these insurers submit rate filings with the CDI to reduce their rates. 

California Insurance Code sections 1861.01 and 1861.05, enacted in 1988 as part of Proposition 103, specifically grants the CDI the authority to regulate the rates of certain property and casualty lines of insurance, including medical malpractice insurance. It requires these insurers to apply to the CDI for prior approval of rates and prohibits the use of excessive rates. 

The CDI noted in its press release that it has employed these provisions in the past to regulate the rates of medical malpractice insurers, including reducing rate increases. 

In contrast, the CDI specifically confirmed that it does not have the authority to reject rates from health insurers that it deems excessive or unreasonable, as health insurance is not subject to California Insurance Code sections 1861.01 and 1861.05.

In his announcement, Commissioner Jones noted that the basis for the CDI’s determination that medical malpractice rates might be excessive is the low loss ratios that these medical malpractice insurers experienced. 

In the CDI’s view, low loss ratios are an indication that premiums might be excessive and in violation of the law. 

The CDI plans to require a rate filing from those medical malpractice insurers it believes have excessive rates and review the rate filings to ensure that the rates comply with the aforementioned provisions of the California Insurance Code as well as all other applicable provisions of the law.

AB 2578: Proposition 103 Coming to Managed Health Care?

by Richard De La Mora

Having unsuccessfully urged Congress to impose a national freeze on health insurance rates, Harvey Rosenfield has refocused his efforts on the California legislature and AB 2578.

Who is Harvey Rosenfield? He is, in his own words, the “author of California’s landmark property-casualty insurance rate regulation Proposition 103 – recognized as the most successful rate regulation in the country.” In fact, AB 2578, which cleared Assembly Health Committee earlier this week, includes the following provisions modeled closely on Proposition 103:

  • A prohibition on the use or approval of rates that are “excessive, inadequate, or unfairly discriminatory”;
  • A right for consumer advocates to request a hearing on a rate application, and a requirement that a hearing be granted whenever the rate increase sought exceeds 7%.

Finally, Mr. Rosenfield has made sure that he and his friends in the consumer advocacy industry are taken care of by advocating a provision requiring health plans to pay the consumer advocacy fees associated with fighting the health plan’s rate application.    

We have seen this played out before, as our firm has represented property-casualty insurers in administrative and judicial matters involving insurance rates regulated under Proposition 103 since 1989.

While property-casualty insurers have had plenty of time to adjust to the dictates of rate regulation, health plans will face a steep learning curve if AB 2578 becomes law. 

We are hopeful that this legislation will not become law. Even if it does, AB 2578 will likely face legal challenges and hurdles as did Proposition 103.

From our experience, we learned some of those challenges will be more successful than others. Nevertheless, if rate regulation comes to pass, a company’s goals can still be achieved provided that it has a complete understanding of the proposed regulatory system, plans ahead, has input into the development of regulations, and prepares itself for life after the system is implemented.

Barger & Wolen will continue to keep our clients and friends apprised on new issues pertaining to AB 2578 via the firm’s Insurance Litigation & Regulatory Law Blog and the Life, Health & Disability Law Blog. If you would like to be notified about upcoming events and seminars pertaining to AB 2578 and other issues, please subscribe to our blog via the RSS feed or add your e-mail in the left column.

Originally posted on Barger & Wolen's Insurance Litigation & Regulatory Law Blog.