California Watch

Moving forward on a pillar of President Obama's health care overhaul, California is expected to create one of the first health insurance exchanges in the United States, despite complaints from insurance companies about a "politicized" system for setting rates.

All states are expected to operate state-managed funds where mostly low-income individuals and employees of small companies can purchase health insurance coverage. California's exchange is conceived in companion bills, AB 900 and SB 1602, that have been moving through the Legislature this session.

The exchange would offer health insurance plans, theoretically, to anyone. Yet it holds the greatest allure for small-business employees and those who qualify for federally funded subsidies. (Families of four earning up to $88,000, or any individual earning up to $43,000, approximately.)

The central controversy around the exchange is whether it should have real power to bargain with health insurers for the best rates. As written in both pending bills, the exchange would indeed have the power to bargain with insurers. But some are suggesting the exchange should simply offer a menu from which to choose coverage from various plans.

Anthony Wright, director of the consumer advocacy group Health Access, is strongly in favor of an exchange with strong bargaining power, similar to how CalPERS negotiates for lower prices for state worker insurance.

A bill meant to ban excessive health insurance rate hikes passed the state Assembly last week and faces a fight from health insurers as it moves to the Senate.

What makes this law one to watch, though, are opposing yet compelling arguments for its potential to bring a windfall in savings to consumers or, perhaps, not.

The bill, by Assemblyman Dave Jones, D-Sacramento, had been like an old penny that just keeps turning up in the Capitol. 

Until, that is, Anthem Blue Cross attempted to raise rates for individual consumers by 39 percent. Amid the ensuing kerfuffle, Jones called executives before lawmakers, imploring, “Have you no shame?”

He lauded passage of the law through the Assembly last week.

“Without this legislation, insurers will continue to dramatically raise health insurance premiums, putting health insurance out of the reach of millions of Californians,” Jones said in a statement.

Proponents of the law compare it to Proposition 103, a 1988 ballot measure that forced car insurers to roll back rates. It also outlawed excessive auto insurance rate hikes in line with what Jones and Assembly member Mike Feuer, D-West Hollywood, propose in AB 2578.

Prop. 103 was all but a tree that grew dollar bills for Californians, according to a 2008 report by the Consumer Federation of America.

The study found that as auto insurance premiums soared by 50 percent from 1989 to 2005 nationwide, they only went up 10 percent in California during that time.

Health care reform has left the realm of shouting headlines and entered the phase of sausage making as the industry and government leaders hammer out how it will work on the ground.

A fascinating debate that raged in 2006 in California may provide a hint as to what’s in store on the federal level.

At issue is the concept of the “medical loss ratio.” It’s a measure of the proportion of premium dollars health insurers spend on medical expenses for patients. Under the federal health care reform law, health insurers must spend 80 to 85 cents on the premium dollar on medical expenses. The remainder is meant to cover administrative costs and profit.

So, what exactly is a “medical expense?” Undeniably it’s money insurers spend on care such as doctor visits, surgeries and vaccines given to policyholders. Anything beyond that, though, seems to be up for debate, such as expenses for nurse hotlines and disease prevention programs.

Politico reported yesterday that there is still plenty of room for political maneuvering as big insurers work with the National Association of Insurance Commissioners to define what counts as a “medical expense.”

If California’s experience is a guide, it may be a battle worth watching.

In 2006, former then-Insurance Commissioner John Garamendi went through a process to move the “medical loss ratio” from 50 percent to 70 percent for individual health insurance consumers. (The federal ratio for individual policies will be 80 percent under the new health reform law.)

Medicare officials announced this week that they are tearing up their contract with a New York-based company – with 4,100 California clients – that delayed or denied patients access to medications they needed.

Fox Insurance Co. let down its 123,000 enrollees by putting obstacles between patients and costly but life-sustaining medications for cancer and HIV, according to a release by Medicare.

Medicare falls under the supervision of Health and Human Services Secretary Kathleen Sebelius, who has been a vocal critic of Anthem Blue Cross over its move to hike some patient's premiums by 39 percent.

Medicare spokesman Peter Ashkenaz said the Fox contract termination was the first of its kind under Medicare Part D, the program put in place by George W. Bush to ensure prescription drug access to Americans older than 65.

Medicare, a massive government agency, contracts out the day-to-day work of getting those medications to seniors to private, mostly for-profit companies like Fox.