In wake of reform, location to play greater role in setting premiums

California is looking to divide the state into geographic regions to help determine how insurers set premium rates--but lawmakers, regulators and insurance companies disagree over the number of regions necessary.

Since the reform law has removed many of the factors that insurers can use to adjust rates, including pre-existing conditions and lifetime medical care limits, they likely will start emphasizing geographical locations and their accompanying healthcare costs when setting premium rates.

Insurers have typically set their own rating regions, but the reform law grants states the authority to establish their own geographical areas. California lawmakers want to create six regions, but the state's insurance commissioner, Dave Jones, said that proposal could lead to 23 percent rate hikes, particularly in San Francisco where large, expensive hospital systems dominate the market, reported the San Francisco Chronicle.

Instead, Jones suggested dividing the state into 18 regions that he said would help minimize "rate shock" and exorbitant premium increases. Under his plan, individuals would only potentially face an 8 percent maximum increase in their premiums, the Sacramento Bee reported.

But the California Association of Health Plans favors creating 19 regions, a plan proposed by the state's health insurance exchange, Covered California. Insurers said 19 regions would help them price premiums that reflect differing costs of care, including regional wage rates, number of hospitals and amount of provider competition, in each area, according to the Insurance Journal.

What's more, insurers argued, standardizing health benefits as required under the reform law will increase premiums, so they need more regions throughout the state to help compensate for that loss.

California state assemblyman Richard Pan, M.D., who proposed the six-region plan, said the state will consider all suggestions, the Chronicle noted. "There are many people doing different analyses," he said. "While we'll be working with many other people to be sure we get this thing right, most importantly we do need to get this bill passed."

To learn more:
- read the San Francisco Chronicle article
- check out the Sacramento Bee article
- read the Insurance Journal article