California prior rate approval scheme dead for this year
As Business Law Daily reports, California legislation that would have subjected health insurers and managed care plans to a prior approval rate regulation scheme has been shelved for this year. AB 52 could however be revived in 2012, the second year of the two-year legislative session.
A logical argument can be made that health insurers and managed care plans should be subject to prior approval rate regulation. California’s market for health coverage is an oligopoly in which a handful of big payers control about 90 percent of the market. Given the lack of robust competition, market forces alone aren’t likely to check premiums. But it’s also not clear that placing payers under prior rate approval like the state’s far more competitive property/casualty insurance marketplace would do so either.
Payers would still pass along the relentless rise of medical care costs to policyholders and members. Perhaps not as quickly since regulators would first have to green light premium hikes. But ultimately higher medical costs would be reflected in increased premiums.
Just as the Baby Boom generation drove up auto insurance premiums in the years after its members got their drivers licenses until middle age and they became safer, more experienced drivers, the Boomer generation’s now aging cohorts are placing enormous cost pressures on health insurers and managed care plans. Those demographic forces as well as rising chronic conditions and obesity among later generations cannot be corralled by insurance rate regulation. They can be mitigated by healthier, more balanced lifestyle choices — choices made by individuals and not regulators.