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CA Insurers Will Pay For Actuaries

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All the commotion about rate increases in the Golden State has finally come to a head.

Recently, California insurance commissioner Steve Poizner hired independent actuaries to determine if health plans’ requested rate increases were too high. But now, under a bill expected to get approved by Gov. Arnold Schwarzenegger, insurance companies will have to hire those actuaries – and pay for them – on their own.

The bill, sponsored by state Sen. Mark Leno, requires any rate increases that insurance companies file with the state to be “actuarially sound.” Furthermore, the plan must pay for the analysis, which will note whether the increase is reasonable or unreasonable, as defined by the Patient Protection and Affordable Care Act (PPACA). Unreasonable rates may be allowed if the analysis gives a reason for the cost.

The legislation was pushed into consideration as a result of health care reform passing. California’s health rate hikes were involved in providing the final momentum for passing the PPACA. California plans must spend at least 70 percent of their premiums on health care. Anthem Health Care was denied a proposed maximum 39 percent and average 25 percent rate increase for individual plans using that requirement, an effort that piqued the interest of the Obama administration.

Poizner hired an independent actuary that showed that math errors by Anthem led to the 39 percent rate increase request. Anthem withdrew its request, and on Aug. 26 Poizner’s office accepted its revised request of a maximum 20 percent increase, and 14 percent average hike, for Anthem’s individual plans.

As a result of the Anthem incident, Poizner required California’s major plans to submit to actuarial analysis beginning in June. This legislation makes official his right to do so and sets up a structure for how plans can finance their review. The bill spells out that the actuary must have no corporate connections to the plan it is reviewing.

“This legislation will not only create greater transparency in health insurance rates, it will also lead to better consumer choices, more competitive plans, and better overall cost-containment in our health care system,” Schwarzenegger said in a news release after the bill’s end-of-session passage on Aug. 31.

The legislature also passed a bill sponsored by Assemblyman Hector De La Torre banning insurance rescissions. The governor has twice vetoed similar bills. But the health reform law outlaws rescissions except in cases of fraud, and all large insurers pledged to follow that ban even before it officially took effect Sept. 23.


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