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In California, Rising Health-Insurance Premiums Spark Outcry

March 3, 2011 at 6:44 PM EDT
Correspondent Spencer Michels reports on increases in health-insurance premiums in California and the resulting outcry for government investigation.

JEFFREY BROWN: Now, anger over insurance rate hikes and a battle brewing in California.

NewsHour correspondent Spencer Michels reports.

SPENCER MICHELS: People got angry when Blue Shield of California announced recently it would raise health insurance rates for some individuals as much as 59 percent. It was the fourth major insurance company to announce sharp increases for those buying their own insurance and the third round of rate hikes by Blue Shield since last fall.

PROTESTER: How much is enough for these people? How much is enough for that CEO?

PROTESTER: That’s right.

PROTESTER: How much is enough?

PROTESTER: How much is enough? Where did all the profits go?

SPENCER MICHELS: On the day of this rally, organized by the California Nurses Association, the company announced it would put off the increases for 60 days, at the request of the California insurance commissioner, while he reviews the new rates for mistakes and to be sure 80 percent of the premiums are spent on health care, as required by law.

PROTESTERS: Shame on you!

SPENCER MICHELS: But the delay didn’t appease protesters like Kerry Abukhalaf, a mother and small business owner, who said her family has been struggling to keep up with the cost of health insurance.

KERRY ABUKHALAF, small business owner: Last year, our monthly premium rate was $420 a month, with a deductible of $10,000. And in November of last year, we received a letter from Blue Shield informing us that they would be raising our rate an additional $120 a month starting in January.

But then we get another letter in December informing us that, as of March, we would be facing an additional $100-a-month increase in our premium. So, we’re looking at $640 a month starting in March. That’s actually almost equal to half of our rent payment. So, think about that.

SPENCER MICHELS: Abukhalaf is considering dropping her health insurance plan, except for her 3-year-old son.

Nationally, insurance rates for individual purchasers recently jumped an average of 20 percent. Rose Ann DeMoro, executive director of the Nurses Association, blames the hikes on high salaries and high profits, even though Blue Shield is a not-for-profit company.

ROSE ANN DEMORO, California Nurses Association: They had the most egregious profits recently than they have had in history. Their profits keep going up and up and up. And it’s — and the question is, in a civil society, is it OK to profit off of human suffering? Because that’s what we have. So, we don’t think they’re victims. We think they’ve made enough money.

SPENCER MICHELS: California’s insurance commissioner, Dave Jones, says Blue Shield and other nonprofits act like for-profit companies.

DAVE JONES, California Insurance commissioner: Even though they are technically a nonprofit, they actually pay federal taxes, because the federal government decided in 1986 that the nonprofits were actually functioning pretty much like for-profits. So, I don’t see a whole lot of distinction between the for-profits and the nonprofits.

SPENCER MICHELS: Blue Shield declined our request for an interview but in previous written statements said it regretted the increases and blamed them on the high costs of medical treatment.

In Sacramento, the health insurance industry lobbyist, former legislator Patrick Johnston, denied that the companies are after excessive profits.

PATRICK JOHNSTON, California Association of Health Plans: Health plans nationally, the profit margin is 3 percent to 5 percent, at best, and many of the health plans are not-for-profit. In fact, the evidence is that 85 percent to 87 percent goes to doctors, hospitals and medicines, and the other amount is overhead and profit. And the profit is small.

SPENCER MICHELS: Estimates of profit margins by health insurance companies vary widely, though of late, several companies have reported large jumps in profits. But the industry says it is hurting because, during the recession, many healthy people have dropped their coverage in order to save money.

So, the companies say they had to spend more on the less healthy policyholders they have kept. Still, industry lobbyist Johnston says high medical costs remain the main culprit.

PATRICK JOHNSTON: Medical treatment costs have been three or four times as high as the inflation rates. So, for instance, over five years, a colonoscopy, an important test, has gone up from $1,000 to $3,000. In 10 years, we have six times as many people getting CAT scans at the emergency room.

SPENCER MICHELS: Insurance Commissioner Jones, a Democrat, agrees costs are up, but not nearly as high as the insurance companies say.

DAVE JONES: Yes, medical costs are going up, but the national average increase in medical costs has only been about 5 percent per year annually. We’ve had 10, 20, 30, 40, 50 percent and more rate hikes year after year after year. It’s ultimately unsustainable.

SPENCER MICHELS: As California insurance commissioner, Jones has the authority to review rate increases for factual errors but doesn’t have the power to deny them, as in some other states. And that has sparked a big debate.

DAVE JONES: I think most Californians are appalled to learn I don’t have that authority, and that’s authority we’re trying to get through the legislature. What we have is, essentially, health insurers dominating the market, able to dictate whatever prices they want. And imagine if the same thing were able to happen in the electricity market.

SPENCER MICHELS: But the insurance industry doesn’t want the commissioner to be able to roll back rates. It has beaten back previous attempts to give him that power.

PATRICK JOHNSTON: The prior approval of rates where it’s happened in other states provides the illusion of cost saving because it suppresses rates temporarily. But that suppression, without any underlying cut in the regular costs, just means that insurance becomes unavailable or doctors or hospitals don’t offer it, and eventually, the costs go back up.

SPENCER MICHELS: Even the insurance industry admits rates are high and something needs to be done. The new health reform law may make a difference, when health exchanges that provide competition between insurance companies kick in in 2014. But even there, there’s major disagreement on whether the new law will increase or decrease insurance costs.

JEFFREY BROWN: A postscript to Spencer’s report: A different insurance company operating in California, Anthem Blue Cross, has proposed another rate increase May 1. That means its policyholders could see a 40 percent increase in less than a year.