Health-care rollout

SN&R talks health-care reform with California Insurance Commissioner Dave Jones

Insurance Commissioner Dave Jones is pushing hard to get AssemblyBill 52 passed. The bill would give him authority to reject excessive health insurance rate increases for Californians.

Insurance Commissioner Dave Jones is pushing hard to get AssemblyBill 52 passed. The bill would give him authority to reject excessive health insurance rate increases for Californians.

Photo By larry Dalton

Dave Jones graduated from Harvard Law School, worked as a legal aid attorney and served as counsel to then-U.S. Attorney General Janet Reno in Washington, D.C. He returned to California, ran for a seat on the Sacramento City Council and has been in elected office ever since.

Longtime Sacramento attorney, politician and consumer advocate Dave Jones served in the California state Assembly for six years, where he chaired several key committees on health and human services. He was elected insurance commissioner in 2010 and now leads the largest consumer-protection agency in the state.

SN&R publisher Jeff vonKaenel sat down with him recently for a talk about health-care reform and how his office is involved. Here is an edited transcript of their conversation.

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 January 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. That’s an immediate benefit right now.

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. And as a result, across the nation we’re seeing an increase in small business providing health insurance for their employees.

So these are all very concrete examples.

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

Exactly. That’s also true for something called medical rescissions. This was 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. Absolutely outrageous. 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. And our exchange authority board met for the first time last week to begin the process of organizing it. So we’re one of the first out of the box to begin moving forward. Meanwhile, there are some states that unfortunately have been captured by Republicans either in their state houses or in their governor’s offices, and they’ve declared that they’re not moving forward. But here in California, we are moving forward.

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. They start from bronze, silver, gold and platinum.

Is this just for California?

This is a requirement nationwide. In each exchange this is a requirement. 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 figure out what you’re getting. It’s absolutely impossible to make comparisons based on price. So one of the purposes of the exchange is to create more standardization, more consumer transparency.

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. And the term “medical loss ratio” bears some discussion. 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. That’s their term for it. What you and I call health care, they call a medical loss. And they do that because their motivation is to try to make as much money as possible. So the federal health-care reform legislation provided that for individual health-insurance products, the medical loss ratio needs to be 80 percent. That’s really important, because you wouldn’t have to go too far back in time in California when the medical loss ratio for individual health-insurance products was 60 percent. When John Garamendi was insurance commissioner, he moved it to 70 percent with legislation. But now the federal law makes it 80 percent.

And the night of my inauguration, I issued an emergency declaration giving me, as the new insurance commissioner, the authority to enforce that 80 percent medical loss ratio here in California. I did that for two reasons. One is because I think it’s important that we have dual state and federal enforcements of these various requirements. But also because I am watching, as we all are, the new House Republican leadership making noises about not only repealing health-care reform, but also potentially defunding it. I don’t think they’ll get away with repealing it, because the Senate won’t allow that, the president won’t allow that. But defunding it may be a place where they’ll make some headway, because budget bills have to originate in the House of Representatives. 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, that 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. The department has had that authority since 1988 and it’s used it to good effect, to save consumers and businesses tens of billions of dollars. But that authority does not include health insurance. And so I’ve been fighting for five years now as a member of the state Legislature to give the insurance commissioner the authority to reject excessive heath-insurance rate hikes, and to give the Department of Managed Health Care the authority to reject excessive HMO rate hikes.

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 A.B. 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. The financial trade papers reported that from 2008 to 2010, they saw a 51 percent increase in profit. Anthem Blue Cross of California in 2010 had a 21 percent return on equity. I know this because I looked at their financial statements personally. 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 A.B. 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. We take as a starting place the medical cost.

I assume you’re getting some sort of push back from the insurance industry?

You know, the auto insurers and the property insurers went through the same thing in 1988, when Prop. 103 was passed. They said the sky’s going to fall, we’re all going to leave the state of California because we won’t be able to make any money. In fact, they’ve made good money. They’ve made healthy profits, they’ve continued to write insurance here, they did not leave the market and we’ve saved consumers tens of billions of dollars.

So what is the status of A.B. 52 today?

Well, the bill passed its first committee, the Assembly Health Committee, last week. Huge fight, long lines of lobbyists in suits running up the side of the hearing room, out the door and around the corner. The insurers have made this their No. 1 target to defeat. And so it was a big fight to get it out of the committee, but we did it. With no Republican votes. The next stop is the Assembly Appropriations Committee.

Let’s go back to the broader topic of health-care reform. In some ways, it seems like some of the changes you mention are important, but it’s almost like we’re fixing the windows in my house when there’s a serious problem with the foundation. We don’t have universal coverage, we promote end-of-life choices that are extremely expensive and tend to have bad outcomes for patients, we have skyrocketing administrative costs, we need more health prevention and education. Aren’t these things the big elephant in the room that we’re not addressing?

Well, there are elements of the federal health-care reform bill that begin to address those things. But you could argue that it didn’t go far enough. As you know, I certainly feel it didn’t go far enough. But the Democrats in Congress, the president wanted to go further—it’s that the Republicans were very successful in preventing that, including some conservative Democrats as well.

But your metaphor that we’re just kind of changing the windows when the foundation is broken—I see it differently. I see the federal health-care reform bill as the foundation. And if we don’t retain the foundation, then you’ll never get to build the next stories on the house. So while the foundation alone might not be enough, without it you’ve got nothing. And so one of the things that I’m concerned about is the misrepresentations by those who are opposed to it. And one of the reasons I’m spending as much time as I am traveling across the state, trying to educate people about what’s in the bill, in terms of its immediate benefits, is so that people understand that there are tangible, really good things in the bill. It may not be perfect, it may not address everything, but it’s a very good foundation on which we can build.

And California is taking the lead once again?

I think it is true that we’re way ahead. I think we were one of the first states that enacted enabling legislation. We are one of the first states to have the exchange authority board meet. So there’s been a lot of thought going into this in California for some time, and I think we’re probably better positioned than most to move ahead.