05/20/2010 11:21 am ET | Updated May 25, 2011

In The Public Interest : High Noon for Insurance Industry Rip-Offs?

Pop Quiz: You're a law-abiding citizen whose family is completely at the mercy of a band of ruffians who do whatever they want, whenever they want. Are you a character in the opening scene of some classic Hollywood Western, or just another consumer trapped in America's health insurance market?

If you have a hard time telling the difference, you're not alone.

In recent years, with the constant rate hikes, rescissions, and pre-existing condition denials, the American health insurance market has been pretty much the same as the Wild West.

Fortunately, the recently-passed health insurance reform law will soon put a stop to some of the worst offenses: it eliminates lifetime caps, stops pre-existing condition denials for children, and bans the illegal process of rescinding coverage once you get sick based on errors in your enrollment forms. Click here more details.

It's as if the law finally came to town, slapping tough new restrictions on the miscreants. But just like in the movies, the black hats don't easily give up their bad old ways.

WellPoint - the nation's biggest insurer - was recently caught red-handed poring through the records of its costly breast cancer-afflicted beneficiaries, looking for excuses to drop them. And one WellPoint subsidiary, Anthem Blue Cross of California, was forced to back off a proposed 39 percent rate hike when they were found to have fudged their books to justify the increase.

Unfortunately, Wellpoint's not alone. There are plenty of bad guys in town. In fact, the whole industry is in cahoots. In comments (PDF) submitted last week to regulators, America's Health Insurance Plans - the trade group representing all the big insurers - pushed for huge loopholes in new regulations on how much they can spend on administrative costs and executive compensation.

Here's the background: the new law requires all health insurers to report how our premiums are spent. Insurers must dedicate at least 80 percent (for the individual and small-group markets) or 85 percent (for large groups) of their revenue to medical care - and if they fail to meet this standard, they have to refund the difference to their consumers.

The provision is badly needed. While every major insurer manages to meet these standards some of the time, most of them have also found opportunities to push plans where a much lower percentage of their premiums go to medical care, pocketing much of the rest. The new regulations would simply make sure insurers lived by some basic rules and provide a bedrock guarantee to consumers that they're getting a fair value for their premiums.

But like horse thieves and outlaws in the Westerns, the insurance industry can't help themselves. They just do not want to change their ways. In their submitted comments on these new regulations, AHIP actually argued that so-called "utilization review" should count as an activity that enhances the quality of care, rather than administrative costs. "Utilization review" may sound like an innocuous insurance term, but in fact it is the process whereby insurance employees review medical records and determine what medical procedures can be approved and what can be denied. In plain language, the insurance industry is trying classify activities designed to deny medical care as a medical care expense! If America needed any more proof that insurers were bent on evading even the most basic consumer protections, this is it.

Secretary of Health and Human Services Kathleen Sebelius should discard the insurance lobby's recommendations, and put in place strong consumer protections. But passing a few new regulations may not be enough.

The truth is that, sometimes, the bad guys just won't stop until a federal marshal rides into town. Fortunately, Senator Dianne Feinstein (D-CA) and Representative Jan Schakowsky (D-IL) have put forward legislation called that would accomplish exactly that. Their proposal - the Health Insurance Rate Authority Act of 2010 (S. 3078) - would create a new regulator with the power to roll back unjustified hikes in insurance premiums. In the 24 states that already review health insurance rates, a new Federal Rate Authority would simply provide federal resources and support to help those states do the job they're already doing. But for the citizens of the 26 states that do not, this new law means that there would finally be someone looking out for them, with the strength to face down the insurance industry.

The bill has the backing of leading health care organizations, and has signifigant support in both Houses of Congress. For millions of families and small business owners struggling with big insurance by themselves, its passage would be just as welcome as the Cavalry riding in.

But whether the bill becomes law hinges on whether or not a few members of the Senate decide to back the side of justice... or to side with the outlaws.

To pass Feinstein and Schakowsky's bill, centrist Senators like Ben Nelson (D-NE), Olympia Snowe (R-ME) and Susan Collins (R-ME) must find the strength to side with the public interesty and with American consumer, not the insurance lobby.

With millions of Americans' health insurance policies set to renew later this summer, we could see a showdown soon.

But if these Senators do the right thing, the good guys will win this round and - on the issue of rate hikes, at least - the bad guys would be run out of town.