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  • Proposed Costly Government Rate Review to Increase Employer Health Care Premiums

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    July 08, 2019

    Much of the Legislature is committed to identifying a path to achieving universal health coverage in California. With the most obvious barrier to that being the extraordinary cost, why would a bill that will significantly increase health plan administrative costs be making its way through the Legislature?

    In 2017, achieving universal health coverage was the reason for the formation of the Select Committee on Health Care Delivery Systems and Universal Coverage in California. The goal was to understand California’s current health care delivery systems and to identify the path towards universal health coverage. One of the several takeaways from the series of hearings in 2017 and 2018 was to reduce health plan administrative costs. The irony is that even with 5 hearings and a report of findings with a recommendation to reduce health plan administrative costs, AB 731 (Kalra), which will significantly increase health plan administrative costs, continues to make its way through the legislature.

    AB 731 mandates rate review of large group contracts such as those between health plans/insurers and large employers with 100 and more employees. It would require health plans and insurers to file over 17,000 contracts with the Department of Managed Health Care (DMHC) or Department of Insurance (CDI). These are contracts that have been thoroughly negotiated and accepted by both parties to the contract; the plan and the employer. The two departments would have to review all of those contracts/filings and make a determination whether the policy rate is unreasonable or if all the required data was not provided, unjustified. The departments would not have authority to deny a rate or guarantee a decrease in health care premiums.

    On the contrary, what this bill can guarantee is that there will be increased administrative costs to health plans/insurers, as well as increased operating costs for DMHC and CDI. DHMC operating costs are funded by health plans which would mean employers and employees would be impacted twice, by shouldering the increased premiums resulting from increased administrative costs to health plans directly, as well as the operating costs for DMHC which health plans are required to fund.

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