The road to health-care reform

A conversation with California Insurance Commissioner Dave Jones

Learn more: The California Department of Insurance is online at

Dave Jones served in the California Assembly for six years, where he chaired several key committees on health and human services. Jones was elected insurance commissioner in 2010.

News & Review publisher Jeff vonKaenel sat down to talk with him recently.

As the state’s insurance commissioner, you’re in the position to influence the rollout of health-care reform in California. What are going to be the impacts here, and when will the reforms start being felt by average people?

We already are benefiting today from federal health-care reform in a number of ways. First, if you have a child who has a pre-existing condition, it used to be the health insurers could deny that child health insurance. As of Jan. 1 of this year, that’s no longer the case.

Second, if you are a senior, you are on Medicare, and you rely on prescription medication, at some point you fall into what’s called the doughnut hole. This is where you have to spend thousands of dollars of your own money to pay for the prescription medications. The federal health-care-reform legislation provides a rebate and over time eliminates that doughnut hole.

Third, if you are a small-business owner and you want to provide health insurance for your employees, federal health-care-reform legislation provides up to a 30 percent federal tax credit to defray the cost of providing health insurance to your employees.

Many people don’t know that some health-care reforms have already gone into effect.

That’s also true for something called medical rescissions … the practice of the health insurers accepting your application for insurance, accepting your money month after month, year after year, and then when you got sick, they would not only deny your claim for medical treatment but rescind your health-insurance policy in its entirety. … It’s now illegal for them to do that.

And a final big benefit coming in the future is the establishment of the health-benefits exchange. This is the place where 4 or 5 million Californians who currently can’t afford insurance will have an opportunity to aggregate in order to purchase a more affordable insurance product.

The exchange is something just here in California?

The federal health-care-reform legislation requires every state either to set up an exchange or to participate in a regional exchange. Either that or the federal government will set up an exchange for you. We’re one of the first states to enact legislation moving forward with the establishment of an exchange.

What kinds of choices will the exchange be able to negotiate with health-care providers?

There are several elements, but one is, in order for the health insurer or an HMO to be a part of the exchange, they have to offer four different grades of product … bronze, silver, gold and platinum.

Is this just for California?

This is a requirement nationwide. And each of these levels has a higher degree of benefits and a higher degree of cost associated with it. But within each level there is standardization that will allow consumers to compare apples to apples across different health insurers’ products. Right now, it’s absolutely impossible … to make comparisons based on price.

How much of the money that we spend on health insurance is really going to health care?

Thanks to the health-care-reform bill, there is now a requirement that 80 cents of every premium dollar spent for individual health insurance actually go to medical care. That’s what’s called the medical-loss ratio. What you and I call health care—that is, the actual provision of money to doctors, nurses, optometrists, ophthalmologists, clinics, hospitals—the health insurers call a loss. And they do that because their motivation is to try to make as much money as possible.

The night of my inauguration, I issued an emergency declaration giving me … the authority to enforce that 80 percent medical-loss ratio here in California. I think it’s important that we have dual state and federal enforcements of these various requirements. But also, I am watching … the new House Republican leadership making noises about not only repealing health-care reform, but also potentially defunding it. So I wanted to make sure that even if they defunded [the Department of] Health and Human Services from enforcing that 80 percent medical-loss ratio, I would still have the authority to enforce it here in California.

What else exactly do you have authority to do in the health-care realm?

Most Californians are surprised to learn that their insurance commissioner does not have the authority to reject excessive health-insurance rate increases. I have the authority to reject excessive premiums for auto insurance, for homeowners insurance and for casualty insurance under something called Proposition 103.

We’ve reintroduced a bill—it’s Assembly Bill 52—and it would simply extend the very successful Proposition 103. That worked very well for property, auto and casualty insurance, and that needs to be extended to health insurance. It’s really the missing piece of health-care reform.

Would AB 52 give you the authority to adjust rate hikes because the overall costs have gotten too high—or would it just be about excessive profits?

Well, the bill is really designed to go after the excessive profit-taking by the health insurers. Last year, the five largest health insurers in the nation announced record increases in profits—both an absolute and a percentage increase. What the health insurers will argue is that they only make a margin of 5 percent. What they’re talking about is 5 percent on overall revenues. That’s not how companies assess their profitability. Companies assess their profitability based on the return they’re making from their shareholders’ investment and their owners’ investment—return on equity. And by the way, 5 percent on premiums annually that are billions and billions of dollars is a really big number.

But if you get beyond that—what AB 52 is designed to do is to give me the authority to go after the excessive profit taking, go after the excessive administrative cost, excessive executive compensation.

The original, longer version of this story ran in the Sacramento News & Review on May 12, 2011. Since the article’s publication, AB 52 has been temporarily shelved, after hitting a roadblock in the Senate.