California Rejects Health Premium Regulations

Californians voted against giving the state's insurance commissioner the power that most have to reject excessive health premium increases.
by | November 5, 2014

California voters rejected a ballot measure that would have given the state’s insurance commissioner the authority to refuse health premium increases he deemed excessive.

Proposition 45 would have made California one of about 35 states where insurance commissioners can reject health premium increases they consider excessive, but the measure went down 60 percent to 40 percent. Under current law, California’s insurance commissioner can complain about rate hikes but not invalidate them.

The measure would also have allowed for public hearings on rate increases and the possibility of challenging those premium hikes through the court system.

Supporters included consumer advocates, including the same organization behind California’s other health-related ballot measure this cycle, Democratic politicians, the state’s insurance commissioner and some unions. Opponents, who outraised supporters by an 8-to-1 margin, were mostly insurance companies, medical and hospital lobbies. Another major opponent never formally came out against the measure but made its influence felt in media coverage and newspaper editorials against the measure: Covered California, the state’s health insurance exchange under the Affordable Care Act.

Covered California officials argued the measure would undermine their ability to negotiate with insurers on the exchange for the best combination of benefits and price. They also argued the potential for legal challenges could interfere with annual open enrollment periods. An independent consultant also found the measure doesn’t spell out who does what among the three different California health agencies.

But supporters argued the disagreement was little more than a bureaucratic turf war, considering numerous other states have a health exchange similar to California’s along with the ability of an independent insurance commissioner to reject rate hikes. Janice Rocco, the state’s deputy insurance commissioner, said the law would indeed given the insurance commissioner authority to reject the rates negotiated between insurers and Covered California as well as the policies currently regulated by another department, but that’s not a bad thing.

“In many states the exchange works with health insurers on what will be the products with the rates while he commissioner can lower those rates if they’re found to be excessive,” she said. In California, we’ve seen four health insurers have 94 percent of enrollment [in the exchange]. In some counties, there’s only one. That puts Covered California in a place where they cannot reject the insurers. That’s why you need the insurance commissioner to play the role of regulating health insurance rates.”

There’s not much research exploring the link between rate review and lower health care premiums, but one study concluded it generally makes a modest difference. A 2013 Kaiser Family Foundation study found effective rate review programs lower premiums by about 1.4 percent, but Kaiser used the federal government’s definition of “effective,” which also includes California’s existing system.

“Effective” programs make information about rate publicly available, demand data to justify changes and review the impact of any proposed changes on patients, among other things. But among the approximately 33 states with “effective” rate review programs, all but 7 allow their commissioners to refuse increases.