(June 13, 2011) A California Chamber of Commerce-opposed “job killer” bill that creates additional bureaucracy and implements rate regulation on health insurance products sold in California by requiring a complex and regulated rate approval process will be considered soon by a Senate policy committee.

AB 52 (Feuer; D-Los Angeles) imposes implementation fees on health insurers to support additional bureaucracy and to regulate rates without addressing the costs that drive the rates.

CalChamber shares the concerns about the rising costs of health care and the increasing necessity for employee cost sharing. Unfortunately, oftentimes the only way employers can afford to offer health care benefits to their employees is through a cost-sharing arrangement. The CalChamber understands that the bill’s intent is to reduce these out-of-pocket expenses that employees must pay in the form of higher premiums, deductibles and co-pays in order to access health care services. Rate regulation is a distraction that avoids the difficult task of driving down the cost of medical care. AB 52 does nothing to lower the underlying causes of escalating medical costs.

A 2004 RAND study, “Should California Regulate Health Insurance Premiums?” concluded that if costs continue to rise while premiums are frozen, then rate regulation could lead to reduced quality and quantity of care, and ultimately insurers could leave the California market.

Furthermore, California has two new tools to ensure against excessive premiums:

• The federal Patient Protection and Affordable Care Act includes a provision already in effect to limit the medical loss ratio, which limits the amount health plans and insurers can spend on administration versus direct medical costs.
• AB 1163 passed the Legislature and was signed by the Governor in 2010, effective this year. This new law provides rate transparency and review. Not enough time has passed to sufficiently review the impact of these provisions. However, to date, it can be said that the review process has brought such transparency and heightened awareness to premium increases that during the process, some health plans have rolled back increases.

The Legislature should give these and other provisions of the federal health care bills still to be implemented time to have an impact on the rising cost of health care. Simply capping rates will not make the costs in the health care system disappear, but instead will limit choices and quality for employers and their employees. Imposing price controls on policies fails to take into account the major causes of rising medical care costs and therefore could lead to limiting access, and ultimately limit employers’ choice of affordable health plans for their workforce.

Action Needed

AB 52 will be heard by the Senate Health Committee soon. Please contact your senator and urge opposition to AB 52.

Staff Contact: Marti Fisher