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Setting the Record Straight Top 10 Myths and Facts about California Health Insurance and Rate Regulation Four legislative proposals to impose rate regulation on health insurance failed to win passage in the past four years. Doctors, hospitals and more than 100 groups oppose these arbitrary price controls because of the devastating impact they would have on patients’ access to quality care. But rate regulation’s tone deaf advocates continue to push for this seriously flawed concept—relying on the same myths and half truths as in the past. Here are the facts: The Myths The Facts 1. Health insurance companies earn excessive Health insurers have one of the lowest profit margins profits. in the entire health care industry. • On average, insurers have a 3% profit margin, compared to the 15.9% profit margin for drug manufacturers and 11.6% for medical products and devices. • The annual profits of the United States’ 10 largest insurers would only cover the cost of one day of health care nationwide. 2. Californians pay more for health care coverage Even though it’s a high cost state, California’s health than people in other states. care premiums are at or below the national average. • The average California individual market monthly premium is $157, ranking it second lowest in the nation. • For large group plans, California ranks in the middle—25 out of 50 states—and below the national average. 2 3. California consumers have no protection against New state and federal laws protect California excessive health insurance rates consumers by limiting health insurance profits and requiring rebates. • Newly enacted state law (SB 51) and federal health care reform require 80 to 85 cents out of every $1 in premiums be spent on medical care. If insurers don’t meet these requirements, they will be required to pay a rebate to policyholders. • California law (SB 1163) also requires insurers to explain any rate increase of 10% or more. • The federal government applauded California’s process for reviewing insurance rates, calling it “effective” and saying it complied with the new requirements for federal health care reform. 4. Insurers’ costs are driving up premium prices. The lion’s share of premiums is spent on medical expenses. • 87 cents out of every $1 in insurance premiums pays for hospitals, doctors, labs, prescription drugs and other health care costs. • Just 6 cents out of every $1 in premiums pay for administrative expenses. • Another 4 cents goes to consumer services, and the remaining 3 cents are profits. For more information, please visit www.calhealthplans.org. 3 5. Californians are at the mercy of the insurance Employers and the government determine coverage industry’s determination of rates, co-pays and for the 93% of insured Californians who get their deductibles. health benefits through their work or through government programs, such as Medicare or Medi-Cal. • Employers negotiate premium prices, co-pays, deductibles and the extent of coverage for the nearly 58% of insured Californians who get their health benefits through their work. • The government sets the terms of coverage for the nearly 35% of insured Californians who rely on government programs to pay for their medical care. • About 7% of insured Californians get their coverage through the individual market, where premium prices have grown faster because fewer people share the costs. This market will become more competitive under federal health care reform. 6. California must impose rate regulation to Rate Regulation would jeopardize the successful successfully implement federal health care implementation of federal health care reform. reform. • It would severely undermine the linchpin of reform, the California Health Benefit Exchange, which will create a new competitive marketplace by negotiating the best rates and plans for individuals and small business. • Rate regulation would effectively give two other state agencies—the Department of Insurance and the Department of Managed Care—the power to veto the Exchange’s insurance offerings by interjecting those agencies into the Exchange’s negotiating and rate- setting process. For more information, please visit www.calhealthplans.org. 4 7. Rate regulation would produce savings for People aren’t cars: The price controls imposed by rate health insurance—like Proposition 103 has for regulation won’t relieve the underlying cost pressures auto insurance. that drive up premium prices. Safer cars, better-built roads and tougher laws have reduced the number of insurance claims and driven down the costs for auto insurers. But the underlying costs of health care have continued to grow, and rate regulation will do nothing to lower those costs. • Americans are living longer, leading to bigger medical bills, more insurance claims and higher costs for the management of chronic illnesses. • Health care spending continues to outpace inflation and growth in our nation’s economy—adding up to more than $1 out of every $6 generated in the U.S. economy. 8. Rate regulation would help more Californians Rate regulation would reduce access to health care get health insurance. for working families, especially the poorest. • Doctors and hospitals rely on private health insurance to offset the billions they lose treating the uninsured and those with government insurance. Rate regulation would eliminate this cost-shifting, leading to fewer available doctors, less access to them and less time for physicians to spend with patients. • Rate regulation would lead to longer delays in getting emergency care, more emergency rooms closures and even fewer doctors willing to accept Medi-Cal or Medicare because these government programs don’t cover the full cost of treatment. For more information, please visit www.calhealthplans.org. 5 9. The public wants more government regulation Nearly 7 in 10 voters say less government regulation of health insurers. and more competition are the best ways to lower health care costs. • 69% of people surveyed by the Rasmussen Reports in July and August 2011 said greater free market competition would do more to reduce health care costs than government regulation. 10. Rate regulation would not add to consumers’ Rate regulation would drive up insurance premium costs: It would reduce costs, like Proposition 103 prices by creating a new deep pocket for lawyers to did. pick and requiring an expensive and expansive new state bureaucracy. • Rate regulation would put millions of dollars into lawyers’ pockets—at consumers’ expense—by offering lucrative financial rewards for filing legal challenges. • Consumer Watchdog, the self-anointed consumer group seeking to impose rate regulation on Californians, already collected $6.7 million in legal fees from a similar provision in Proposition 103. It stands to make millions more from an initiative it’s proposed to impose rate regulation on health insurance. • Rate regulation would create expensive and expansive new bureaucracies at the same time the state is trying to cut costs. Official state estimates put the price tag at $58 million in the first year alone for a rate regulation proposal that died in the Legislature in 2011, AB 52. In addition to the startup costs, annual expenses for AB 52 were expected to be nearly $30 million. For more information, please visit www.calhealthplans.org.
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