Unless the state acts, the consumer will be the loser

In the 1990s, a broad swath of Americans--from corporation executives to low-wage workers--have embraced health maintenance organizations for the way they applied free-market incentives to health care. HMOs have generally been able to provide both affordability and quality care by rewarding doctors and nurses for efficiency.

Recent HMO mergers in California, however, threaten to undermine the competitive environment in which managed care has thrived. Last week, for example, Pacificare obtained tentative government approval to acquire its former rival, FHP, for $2.1 billion. If the deal is approved as expected by the state Department of Corporations early next month, it will mean that only three health care companies--Pacificare, Kaiser Permanente and Health Systems International--will cover 9 million of the 13 million Californians currently enrolled in HMOs (and more than half of the people covered by any form of managed care).

Lest consumers be harmed economically by such concentration, regulators and the state Legislature should take two important steps:

* Install greater distance between the Department of Corporations and the industry it regulates. Otherwise, the agency risks losing public credibility. Last August, for instance, Corporations Commissioner Keith P. Bishop allowed a group dominated by industry representatives to evaluate many of the state’s managed care plans, to the horror of consumer health groups. Unless Bishop sharpens the department’s fuzzy oversight, its role as the state’s HMO regulator might be permanently damaged.

Last year state Sen. Steve Peace (D-El Cajon) introduced a bill to move HMO oversight from the Corporations Department to the state Insurance Commission. And next month state Sen. Herschel Rosenthal (D-Los Angeles) is expected to introduce a bill to move HMO oversight to the state Department of Consumer Affairs.

* Better publicize the Department of Corporation’s toll-free number for registering complaints against HMOs. On Tuesday the Corporations Department fined 43 HMOs for failing to inform their members about the state hotline. The action was appropriate, for the department has copious evidence that the HMOs violated a state law requiring them to display the number in contracts, complaint forms and “written responses to grievances and complaints.”

The agency could also do a better job of publicizing itself. According to a 1995 Times poll, only 1% of California HMO members knew that the Department of Corporations regulated their plan.

In last November’s elections, Californians voted down Proposition 216, a ballot initiative that would have created a big government bureaucracy to oversee HMOs. By making small government work, whether by way of the current regulators, the Insurance Commission or a consumer protection agency, legislators can prove the voters right.