(September 2, 2011) A California Chamber of Commerce-opposed bill that would have created uncertainty, increased the complexity in the health care system and led to higher costs for employers and employees was held on the Senate floor this week because there were too few votes, according to its author.

AB 52 (Feuer; D-Los Angeles) would have created uncertainty and delays for employers by creating an unworkable complex rate approval and regulation process for employer-sponsored health coverage and added implementation fees on health insurers to support a complex and regulated plan approval process.

With just six days remaining in this year's session, Feuer said in a statement that he will try again next year.

AB 52 Problems

Problems the CalChamber had identified with AB 52 included the following:

• AB 52 would drive up the price of health coverage, led to lengthy delays and limited choices by irresponsibly creating costly new government bureaucracies. The added bureaucracy and administrative burden imposed by AB 52 would have ultimately driven up the price of coverage because premiums would have had to cover the added cost of complicated filings and legal challenges to new rates and the state’s cost for reviewing those submissions.

In the long run, temporary artificial suppression of rates would lead to larger increases down the road because health insurance has to cover the cost of offering and providing health coverage. Policy changes requested by employers, even minor changes to benefits or cost-sharing, would be subjected to regulatory review, delay and legal challenge. AB 52 would have done the opposite of what it claimed to do: It would have driven up insurance premium prices for employers and their employees and that will limit their choices for coverage.

• AB 52 encouraged expensive legal disputes—and would have added even more to employers’ and employees’ insurance costs. AB 52 would lead to protracted, costly lawsuits and administrative hearings by offering lucrative financial rewards to lawyers for filing unnecessary legal challenges. The bill would have enabled almost any individual or group to intervene in an ongoing rate-setting proceeding, adding even more to the cost of employers’ and employees’ premiums, delayed approval of employers’ health benefit packages and further limiting their choices.

Under AB 52, attorneys would have the power to block the sale of the high-deductible insurance relied on by many small employers and to object to the contracts larger employers negotiate with health plans, creating uncertainty and complexity for employers. These legal challenges and regulatory reviews would add hundreds of days to the process, costing employers money and precious time.

• AB 52 offered no relief from the underlying cost pressures that drive up employers’ and employees’ insurance premiums. Health plans provide comprehensive, high-quality coverage to more than 27 million Californians at a price that—in a high-cost state—is around the national average. As it should, the lion’s share of premiums is spent on medical expenses: 87 cents out of every $1 in insurance premiums pay for hospitals, doctors, labs, prescription drugs and other health care costs.

In comparison, only 3 cents out of every $1 in premiums go to health plan profits. Underpayments for government insurance programs, such as Medi-Cal, and the cost of treating the uninsured drive up premium costs by as much as $1,792 more per year for each insured California family.

Americans are living longer, leading to bigger medical bills and higher costs for the management of chronic illnesses. New technology often improves care, but is responsible for about half of the growth in medical spending.

As a result of all these and more underlying pressures, health care spending continues to outpace inflation and growth in the nation’s economy—adding up to more than $1 out of every $6 generated in the U.S. economy. AB 52’s arbitrary price controls would have applied only to health care premiums—not to the underlying causes of rising costs.

• AB 52 was unnecessary—employers and their employees are already protected by new state and federal laws that call for rate review and limit excess profits. AB 52 was 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 cents 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.

Enacted with bipartisan support, a new state law, SB 1163 (chaptered on September 30, 2010), provides unprecedented accountability for rate changes by requiring far more disclosure than the federal health care law mandates. It requires health plans to have an independent actuary certify that any premium increases are justified. It gives the Department of Managed Health Care and the Department of Insurance new powers to review rate changes, and it provides for public comment on premium increases.

The new federal and state laws should be given a chance to work before adoption of an unnecessary and unproven price control scheme that could endanger the vital health care changes already underway.

Staff Contact: Marti Fisher