First Volleys Lobbed in Expected Long Debate on Rate Regulation in Prop. 45

The Legislature last week took on Proposition 45, the health insurance rate-hike regulation initiative that promises to be one of the most hotly debated issues on the November ballot.

The Senate and Assembly held a joint informational hearing July 2 on the ballot measure. The Legislature is required to hold such hearings on all initiatives that make the ballot.

Much of the hearing delved into the policy of the ballot initiative, rather than just focusing on political posturing.

The fact that California has two autonomous entities currently regulating health insurance (the Department of Managed Health Care, or DMHC, and the California Department of Insurance, or CDI) creates some complications in implementing Prop. 45 if it becomes law, according to Deborah Kelch, director of the Health Insurance Alignment Project, a research effort created by a grant from the California HealthCare Foundation. CHCF publishes California Healthline.

The main question the initiative raises for voters is whether or not they should change the way health insurance is regulated in California, Kelch said, “And the second question is how to implement rate regulation given California’s dual regulatory structure.”

Giving authority over rate regulation solely to the Department of Insurance, as the ballot measure requires, could make health care policy even more complicated than it already is, Kelch said.

“Proposition 45 is … silent as to how, if at all, CDI, DMHC and Covered California are expected to collaborate in order to carry out their respective statutory obligations,” Kelch said.

“Proposition 45 raises substantive policy and legal questions,” she said, adding, “It is unclear whether, and to what extent, the Legislature could address or resolve these questions,” since changing a voter-approved initiative requires a two-thirds vote in the Legislature.

To Dave Jones, California’s elected insurance commissioner, the main question is the most important one: whether or not to have the state halt insurance rate hikes it deems unreasonable.

“The insurance commissioner would have the same authority as exists in 35 other states to reject excessive rate hikes,” Jones said.

“Health insurance rate regulation is necessary to stop excessive insurer and HMO rate increases,” he said. “While the rate of medical cost inflation nationally is only about 3% or 4%, in California health insurance rates for family coverage have increased [by] 185% since 2002.”

Jones said rate regulation has proven to work in California, as a number of other types of insurance long have had the regulatory ability to quash unreasonable rate hikes.

Charles Bacchi, executive vice president of the California Association of Health Plans, had a different view.

“Health care costs do continue to rise, and there have been various reasons for these increases,” Bacchi said, “including the aging population, the rise of obesity, the cost shift for the uninsured and underfunded government programs, new medical breakthroughs and increased utilization.”

Giving the state authority to regulate rate increases would be the wrong direction, Bacchi said, “for the challenge of affordability.” The real factors that have been driving the increase in cost for health care, he said, would not be addressed with Prop. 45.

And, he said, the initiative would immediately affect the state’s health insurance exchange.

“If the initiative passes on Nov. 4 and open enrollment begins on Nov. 15, there is no way premiums for 2015 will have been approved, and we do not believe we can move forward with unapproved rates.”

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