Health-care premiums in California have risen more than five times the rate of inflation over the last decade. Annual rate hikes for most employers have hit double digits. These figures alone make Proposition 45 an easy sell. The Nov. 4 ballot measure would give California Insurance Commissioner Dave Jones authority to regulate rates for about 6 million people with individual and small-employer health plans — and reject those considered “excessive.” Currently, regulators in the state can rail against health insurance rates — but can’t reject them. “Without Proposition 45, insurers will continue to set rates as they please,” said Jones. But that’s just one side of the story. Opponents see Proposition 45 as a power grab by an elected insurance commissioner angling for higher office and a consumer group that stands to make money off the deal.
The measure doesn’t solve the problem of rising health-care costs, says a coalition of health plans, taxpayer organizations, health-care providers and business groups that oppose Proposition 45. The measure would further confuse an already tangled regulatory scheme, critics say. And it could muck up open enrollment in Covered California, the state’s health exchange, they contend. “Whether you’re for the ACA or not, we have what’s probably the best exchange in the country,” said Allan Zaremberg, president and CEO at the California Chamber of Commerce. “Here’s a chance to create havoc and mischief at a time when a lot of employers are trying to decide whether it’s in their best interest to cover employees — or to send them to the exchange.” A tug-of-war is expected to play out in an aggressive campaign over the next two months. Campaigns have raised more than $42 million — with $38 million of it coming from opponents of the measure. But less than three months before the election, the initiative looks like a shoe-in. Sixty-nine percent of likely California voters are in favor, according to a Field Poll released last week. Long time coming Though he heads the California Department of Insurance, Jones currently has little power over health-plan rates.
He has tried to get health insurance rate-regulation authority into law in California for almost 10 years. Consolidation of the health insurance market into the hands of a few big players gives them extraordinary market power, he said. “That’s the biggest reason we have to change the law here — it’s pure economics.” Jones is working with the activist group Consumer Watchdog to win voter approval. Trial lawyers and some Democratic party leaders are backing the measure. The measure would affect only about one-quarter of the health insurance market— the portion dealing with individual and small-employer plans. It would not give Jones power to reject rates for large-employer and government plans covering about 19 million Californians. The measure is modeled after Proposition 103, approved by California voters in 1988. The earlier initiative gave the insurance commissioner authority to regulate auto, homeowner and business insurance premiums. The approach works for cars and houses and malpractice insurance, and also would work for health insurance, initiative proponents say. They point out that health-care rates have risen faster in California than nationally, that insurers are making big profits and that 35 other states already give insurance commissioners regulatory authority over premiums. Like Proposition 103, Proposition 45 allows individuals and consumer groups to challenge rates, demand a hearing, go to court if unsatisfied with the outcome — and recover fees and expenses.
This throws another unknown into the mix that most other states don’t allow — court appeal. This “intervenor” provision in Proposition 45 adds checks and balances into the system, said Jamie Court, president of Consumer Watchdog and author of the initiative. Opponents of the measure say Consumer Watchdog has a conflict of interest. The nonprofit advocacy group has collected $8 million in fees from insurance-rate challenges since 2002 to pay for expert testimony from lawyers, actuaries, economists and others, including its own staff. Those fees help pay for operations at the nonprofit. Concern about Covered California The Affordable Care Act makes rate regulation more important now than ever before, Court said. “We have a mandate to buy health insurance, and no agency at the state or federal level can make sure it is affordable,” he said. The ACA already provides some controls on rates — for example, by requiring insurers to spend at least 80 cents of every premium dollar on medical services. But Court said insurers can hide money in investments and are free to hike rates in order to keep making money. Opponents of Proposition 45, however, say it would play havoc with the state’s health-benefit exchange. Covered California announced a proposed average rate increase of 4.2 percent next year — perhaps the lowest in the country. It was able to do that because the agency is an “active purchaser” that set standards for rates, quality and outcomes next year, invited plans to participate and then negotiated final numbers.
Proposition 45 could undermine this process and other functions at Covered California, executive director Peter Lee said at a legislative hearing last month. Other concerns include: *Strict timelines to get health plans and rates approved raise questions about whether Proposition 45 could gum up the works, particularly if a consumer group or individual asks for a hearing. *It’s unclear how rate regulation will affect government subsidies that help members pay their premiums. *If a proposed rate is rejected, the health plan may withdraw from the market, leaving less choice and the possibility that members have to change doctors. Jones countered that he could make rate proposals due early in the year in order to meet Covered California timelines. That might work, said Diana Dooley, chair of the exchange board. But another insurance commissioner might not do the same. And challenges by intervenors could be a big problem, Dooley added. “Anyone can do that — and a lot of people don’t want the ACA to be successful.” California’s dual regulators Critics of Proposition 45 point to another problem: The measure would complicate an already tangled relationship between California’s two health insurance regulators. Unlike any other state, health plans in California are overseen by two different agencies. Jones regulates preferred-provider organizations and traditional indemnity plans. The Department of Managed Health Care oversees mostly health maintenance organizations.
The initiative would give Jones authority over coverage offered under both regulators. But laws that govern the two agencies are different. For example, DMHC considers other factors like network adequacy and access to care when it reviews rates; the Department of Insurance does not. Jones suggest that the DMHC would be superfluous if voters approve Proposition 45. “The dual system is very ineffective and confusing,” Jones said. “It’s up to the Legislature to determine whether it wants DMHC to continue to review rates.” Dooley disagrees: “California does have two regulators and if we are going to have rate regulation, each one should have authority over their own products,” said Dooley, who oversees DMHC as secretary of the California Health and Human Services Agency. “In my experience, DMHC is a very sophisticated and appropriate regulator with a strong track record of consumer protection.” Closer look: Insurance Rate and Public Justification and Accountability Act * Applies to insurance for individuals and small employers only *Requires changes to health insurance rates — or anything affecting charges associated with health insurance, including out-of-pocket costs — to be approved by the insurance commissioner before taking effect *Applies to health insurance rates in effect Nov. 6, 2012, and allows for refunds if rates are deemed “excessive” *Provides for public notice, disclosure, hearing and judicial review on health insurance rate changes *Prohibits health, auto and homeowner insurers from determining policy eligibility or rates based on lack of prior coverage or credit history *Requires health insurers to pay a fee to cover the cost of administering the law Campaign contributions: Supporters Total:$4.5 million Consumer Watchdog:$4,464,376 Jones for Passage of Prop. 45:$68,675 Opponents Total:$37.9 million WellPoint Inc.:$12,896,224 Kaiser Foundation Health Plan Inc.:$7,421,399 Blue Shield of California:$5,062,824 Health Net Inc.:$261,224 UnitedHealthcare Insurance Co.:$156,224