California Proposed Medical Loss Ratio Requirement

Ruzanna Harutyunyan's picture

California health insurers say legislation that would require them to spend at least 85% of premium revenue on health benefit expenses would not address the underlying causes of rising health care costs or improve the quality of care, the Wall Street Journal reports. The bill, which the state Legislature approved on Sunday, aims to hold down rising costs for patients and employers by limiting the amount health plans can spend on "wasteful administrative costs and excessive profits," according to bill sponsor state Sen. Sheila Kuehl (D).

The bill would require health insurers to maintain at least an average 85% medical loss ratio across all lines of business by 2011. Under the legislation, health plans would be allowed to subtract tax payments from their revenue and consider disease-management and nurse call lines as medical costs, rather than overhead. OppenheimerFunds analyst Carl McDonald said that with those and other adjustments in calculations, "all plans in the state would be safely above the minimum requirement," but they would have to reconsider growth in the individual and small-group markets because of the lower loss ratios in those sectors.

Michael Kleinman, a spokesperson for WellPoint, said, "We do not like to see this kind of legislation; we think there can be some unintended consequences," adding, "We will have to modify what we're doing." California accounts for 20% of WellPoint's members. Aetna spokesperson Mohit Ghose said that a fixed loss ratio requirement "doesn't take into account the need to address underlying cost drivers in health care" and that until lawmakers address those issues directly, the industry will not be able to provide more affordable policies for the uninsured.

UnitedHealth Group spokesperson Tyler Mason said that health insurers supported the loss ratio requirement when it was part of Gov. Arnold Schwarzenegger's (R) failed health care plan, but he added that insurers would object to the proposal without other changes to the state's health care system (Wisenberg Brin, Wall Street Journal, 9/3).

Other Legislation

California lawmakers also took action on a number of bills, including some health care measures, before the legislative session ended on Sunday, the Sacramento Bee reports (Rojas, Sacramento Bee, 9/1). Among the recent action:


* The Assembly on Friday approved legislation (SB 840) that would create a state-run, single-payer health care system using state and federal funds, with patient premiums and copayments capped at $250 per person or $500 per family annually. Lisa Page, a spokesperson for Gov. Arnold Schwarzenegger (R), said the governor would veto the measure. He rejected a similar proposal in 2006 (AP/San Francisco Chronicle, 8/29);

* The Legislature approved a bill (AB 1945) that would permit health insurers to rescind health insurance policies only under specific conditions and would subject rescissions to review by state regulators. Schwarzenegger has not taken a position on the measure but he has urged lawmakers to bar insurers from terminating coverage for people with illnesses;

* The Assembly approved legislation (AB 2569) that would require health insurers to maintain coverage for family members of people whose health insurance coverage has been rescinded (Vogel, Los Angeles Times, 9/1);

* The Senate approved a bill (AB 2) that would require health plans to offer coverage to people considered medically uninsurable because of pre-existing medical conditions or contribute to a state account that subsidizes insurance for them (McGreevy, Los Angeles Times, 8/27);

* The Legislature rejected legislation (SB 1522) that would have broken health plan policies into five categories as part of an effort to make it easier for consumers to compare coverage options (Sacramento Bee, 9/1);

* The Senate approved a measure (AB 211) that would require hospitals to develop plans to protect patients' medical information and that would establish a new state Office of Health Information Integrity, which would be authorized to issue fines of up to $250,000 for patient privacy breaches (Los Angeles Times, 8/27); and

* The Senate approved a bill (SB 541) that would increase fines against hospitals for serious medical errors from $50,000 to $125,000 (Los Angeles Times, 8/27).

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