When Anthem Blue Cross notified 800,000 California customers of a jaw-dropping double-digit increase in premiums, it exposed a crucial gap in state law: Regulators can limit how much insurers charge for policies covering autos, homes and property, but they can't block exorbitant increases in health insurance premiums. The new federal healthcare law lets Washington order rebates for consumers when insurers spend too little of their premium revenue on medical costs,, but it leaves it to states to scrutinize premium hikes before they're imposed. And California has no real authority to do so.
Assemblyman Dave Jones (D-Sacramento) proposes to solve that problem by allowing two state agencies, the Department of Insurance and the Department of Managed Health Care, to block proposed increases in premiums and out-of-pocket costs if they are "excessive," "inadequate" or "unfairly discriminatory." His bill, (AB 2578), is awaiting action in the Appropriations Committee, and we urge the panel to pass it before it expires next week.
State law currently requires health insurers to give the state 30 days notice before a rate increase and to spend at least 70% of their premium income on health services for their customers. Beyond that, the state has no say in rate increases. Anthem could have raised its premiums months ago despite the outcry, but it held off voluntarily to give the state more time to review its rates. (It eventually canceled the increase after independent actuaries found it was based on faulty math.) That's an unreasonable amount of faith to put into an industry that will soon have a much stronger grip on consumers' wallets; under the new federal healthcare law, virtually every adult will be required to purchase health insurance by 2014.