Californians Want It. Insurers Don’t. So Why Are Top Officials Fighting Over Prop. 45?

“It’s going to end up hurting Californians,” Covered California board member Susan Kennedy said at a board meeting last month.  

“It will damage health care reform, perhaps permanently, perhaps fatally, in California and I think perhaps nationally.”

Was Kennedy talking about the Halbig lawsuit, which threatens the legality of Obamacare’s insurance exchange subsidies?

Was she riffing on the possibility of another health insurer dropping out of California’s marketplace?

No. Kennedy was dispensing her opinion on Proposition 45, a ballot measure that would give the state’s insurance commissioner the power to veto premium hikes … and has sparked California’s most contentious health care debate.

Battle Over Rate Regulation Matches Consumers Vs. Insurers …

Prop. 45 was put forward by the Consumer Watchdog advocacy group and has since been supported by Insurance Commissioner Dave Jones (D).

The measure would allow the insurance commissioner to reject health insurers’ rate increases if they’re deemed unjustified, analogous to how automobile and property rates are controlled.

Thirty-five states have adopted similar measures to Prop. 45, and in 55 days, Californians will decide whether they want it, too.

By the numbers, it seems like Californians have already made their choice: A Field poll released last month found that nearly 70% of registered voters said they would vote for it.

But a new group — Californians Against Higher Health Care Costs — is trying to chip away at that support, making a dueling set of arguments:

  • To Republican voters, making the case that Prop. 45 empowers Jones as an unaccountable health care czar; and
  • To Democrats, that Prop. 45 would threaten the successful implementation of the Affordable Care Act.

But as Wendell Potter reports for the Center for Public Integrity, the group isn’t simply assorted do-gooders pushing a grassroots campaign, but rather high-powered lobbyists with an Astroturf agenda; Californians Against Higher Health Care Costs is backed by more than $37 million in donations from the California Association of Health Plans and the state’s leading insurers, Potter notes.

… and California’s Insurance Commissioner vs. Covered California

The fight’s also pitted the Department of Insurance against Covered California, fueling an “increasingly bitter division between two state agencies that should be working hand in hand to improve health insurance coverage for Californians,” according to Los Angeles Times columnist Michael Hiltzik.

“There must be something else going on here than merely an internecine dispute about how to regulate insurance premiums,” Hiltzik suggested.

In some ways, it’s a simple power struggle with complicated implications for the health insurance market.

“At this point, I can only conclude it’s the political [and] philosophical opposition of several Covered California board members, who are using their positions” to fight rate review, Jones told California Healthline.

Arguments against Prop. 45

Covered California has suggested that allowing the Department of Insurance to veto rate requests would disrupt its ability to create an insurance marketplace, by adding another layer of bureaucracy and introducing unpredictability.

For instance, Covered California could negotiate with a certain plan to serve a community — but under Prop. 45, the insurance commissioner could change the terms of that arrangement at the last minute, with implications for consumers and  health providers, as well as the insurer’s decision to remain in California.

“Even under a best-case scenario, [Prop. 45] adds delay, confusion, litigation, risk of retroactive rejection and cost,” Kennedy said at last month’s Covered California board meeting.

Peter Lee, the exchange’s director, has also stressed that Covered California’s “active purchaser” model has helped tamp down premium hikes, mitigating the need for rate review in the first place.

The Bay Area Council’s Micah Weinberg argues in a San Jose Mercury News op-ed that the system is working. (The Bay Area Council works with large employers in Northern California.)

“Changing California’s successful system now — in the face of the concerns raised by Covered California, the Department of Managed Health Care and broader health policy community — would be worse than unwise,” Weinberg wrote.

Arguments for Prop. 45

Defenders of the measure suggest that there’s a track record of California’s insurers raising rates despite objections.

In the past four years, insurers have proceeded with at least 14 rate hikes that were deemed unreasonable by California regulators, according to the California Public Interest Research Group, Helen Shen noted in Kaiser Health News.

Jones said that Covered California’s current structure allows insurers too much negotiating leverage. “When your bargaining partner controls 93% of the market, you don’t have the bargaining power to get better rates,” Jones told California Healthline, pointing out that four large insurers dominate sign-ups on the exchange.

Jones added that other states with comparable approaches to an active-purchaser model have successfully introduced rate review. And he suggested that it was the looming threat of Prop. 45 that helped scare health insurers to keep their rates low ahead of the next Obamacare enrollment period.

“There’s no question that health insurers have pushed the pause button in their double-digit rate hikes,” Jones said. “They don’t want a repetition of what happened in 2009,” alluding to Anthem Blue Cross of California’s high-profile and controversial premium increases — a decision that backfired on the insurance carrier and was a pivotal moment in the national campaign to enact the Affordable Care Act.

What’s Next

Ahead of November’s vote, both sides are positioning for the long run. Covered California plans to discuss Prop. 45 again at next week’s board meeting, while Jones has continued campaigning for the measure’s passage.

“I’m a big believer in California exceptionalism,” Jones said. “But it is simply not the case that we are exceptionally not able to implement rate regulation in a way that 35 other states can.”

“If 35 other states have been able to do it, there’s no reason why California can’t do it.”

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