Santa Monica, CA ~ Consumer advocates are calling Blue Shield's 59% premium hike Exhibit A for legislation that would allow the Insurance Commissioner to curb health insurers' rate hikes.

In California and most states, health insurers can raise premiums without providing any detailed justification and without any fear that a regulator will investigate and potentially block rate hikes. With federal health reform's requirement that 80% of premiums must be related to healthcare services and only 20% on profits and administration, it is likely that Blue Shield and others will increase payouts to medical providers in order to increase premiums and their own total income.   

The "medical loss ratio," as the 80%/20% rule is known, does not limit how much insurance companies spend on things like advertising and profits unless the rule is applied in conjunction with regulation of rates. Without regulation, as is the case with Blue Shield, insurance companies are using the federal law as an excuse to increase premiums.

"Californians are not the only ones about to suffer through huge price spikes," said Consumer Watchdog President Jamie Court, author of The Progressive's Guide To Raising Hell. "Blue Shield's announcement foreshadows what we'll be seeing around the country in every state that refuses to take on the insurance industry and enact real regulation. Insurance companies are limited to 20% of premiums for profit and overhead, so in the absence of price limits they have every incentive to pay doctors and hospitals too much in order to let premiums rise and pad their 20%"

So there is your cost cutting measure folks. Only 20% of whatever the costs are go towards profit and overhead.

So all they need to do to make more money is to spend more on the overall cost of healthcare and they make a bigger profit.