Group Asks HHS to Deny California Health Grant Proposal, Citing Intent to Kill Strong Reforms

$1 Million Grant Would Bolster Industry-favored Schwarzenegger Plan, Help Kill Actual Regulation of Insurance Companies

WASHINGTON, Aug. 3 /PRNewswire-USNewswire/ -- Consumer Watchdog today asked Health and Human Services Secretary Kathleen Sebelius to reject Gov. Arnold Schwarzenegger's request for a $1 million grant under the new health reform law. The grants are intended to help states strengthen regulation of health insurance companies, but the Schwarzenegger administration's weak plan would kill proposed protections against unjustified rate increases, Consumer Watchdog charged.

In a brief letter to Sebelius, the nonprofit, nonpartisan consumer advocates charged that the $1 million grant would in effect support legislation intended to prevent regulation of insurance rates. The governor's legislative proposal would prevent even effective analysis of health insurance rates except at the explicit direction of the federal Department of Health and Human Services.

The letter noted that the state plans to use the grant money primarily to hire a few actuaries who may be able to look at insurance rates but will be prevented by law from regulating them. The governor's legislative proposal explicitly states that when an insurance rate is found to be both unreasonable and unjustified, or plain inaccurate, the most that regulators may do is to publish that information online.

"If California had regulations like that about air quality, we'd have scientists studying a pea-soup smog and telling us it existed, but with no power to cut pollution," said Judy Dugan, research director of Consumer Watchdog. "We empower government to clean the air because everyone breathes it, and we need to use the same power now for health insurance, because everyone will be required to show insurance coverage under the new law."

In contrast to California's submission, grant requests from other states including Illinois and Nevada propose strengthening state rate regulation through legislative proposals to require approval of rates before they go into effect.

"HHS should send state grant requests that block meaningful rate review back to the drawing board," said Dugan.

Download the letter at http://www.ConsumerWatchdog.org/resources/sebeliusletter080310.pdf

The letter said:

Dear Secretary Sebelius,

We ask with regret that you reject California Gov. Arnold Schwarzenegger's request for a $1 million grant in connection with implementation of the rate review changes in the Patient Protection and Affordable Care Act.

We ask this not to deprive the state of needed funds, but to prevent the funds from being used for a purpose that is near-opposite the intent of the law. The funds would implement a proposal by the governor that is meant to prevent, not develop, any effective state regulation of health insurance rates.

The governor, in his July 7 letter to you, specifically rejected the entire concept of rate regulation, even though effective and well-crafted legislation for prior review of insurance rates is nearing a final vote in the state Legislature.

See Consumer Watchdog's letter asking Gov. Schwarzenegger to reconsider his stance at http://www.ConsumerWatchdog.org/resources/ArnoldLetterRateReviewFINAL7-23-10.pdf

We appreciate your department's explicit encouragement of state regulation to accompany a law that will require all Americans to show proof of insurance. A product that tens of millions of us will be required to purchase must not be priced solely based on profit demands from Wall Street, to the exclusion of consumer protection.

In effect, the state would use the HHS grant money to hire actuaries who may be able to look at insurance rates but will be prevented by law from regulating them. The governor's legislative proposal, referenced in the grant application, explicitly states that when an insurance rate is found to be both unreasonable and unjustified, or plain inaccurate, the most that regulators may do is to publish that information online.

California already has an effective model of prior approval rate regulation for property and casualty insurance, under voter-passed Proposition 103. Until California's chief executive accepts the need for prior review of health insurance rates as well, in a way that will both protect consumers and keep the insurance industry healthy, we ask that you not fund a project meant to prevent such regulation.

Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: http://www.ConsumerWatchdog.org

SOURCE Consumer Watchdog