California is known for attracting costly ballot measures that ask simple questions with far-reaching implications. On the surface, California’s Proposition 45 would bring the state in line with a majority of others on regulating health insurance, but as with anything that attracts tens of millions in opposition spending, the measure is weighed down by arguments about what that would mean.
Prop. 45, which is on November’s ballot, would allow California’s elected insurance commissioner to reject health insurance premium increases he deemed excessive. The measure would also require public notice of rate changes and allow for challenges from outside groups through the court system if they’re not satisfied with a public hearing. Currently, California’s insurance regulators can complain about a rate but can’t stop it from going into effect.
Empowering a department of insurance to reject rates, which is known as “prior approval” authority, is far from unprecedented. About 35 other states have some form of prior approval for individual and small-group insurance markets. Most Americans have employer-sponsored insurance, which isn’t subject to rate review in most cases.
The individual and small-group markets now come under the Affordable Care Act, which established health exchanges for people without health care from a large employer to shop for plans with the help of federal subsidies. California’s health exchange, Covered California, is one of many opponents to Prop. 45, along with insurers, doctors’ groups, myriad other medical lobbies, some unions and chambers of commerce.
Some outside the state might be wondering: Why would Covered California, an organization focused on making insurance more affordable and available, oppose a measure allowing a regulator to stand against rate hikes?
Covered California, which signed up 1.3 million people in private plans during the last enrollment period, technically remains neutral on Prop. 45. But the organization has released memos arguing passage of the measure could cause a “significant detrimental impact,” and members of Covered California’s board have publicly stated their opposition.
For one, they say, Covered California’s role as an “active-purchaser” exchange would come under question. Active-purchaser exchanges negotiate with health plans to come to agreement on price, networks and quality measures -- though they typically can’t reject prices. The ultimate price plays a key role in other facets of a health plan, such as the number of doctors offered to patients or cost-sharing. If plans suddenly have to go through the Department of Insurance to get their prices approved, they’ll be “reluctant” to talk about the other facets of their plans with Covered California, the organization argued at an August board meeting.
Another issue, according to Covered California, concerns timelines. A report commissioned by opponents of Prop. 45 and written by the founding chief executive of Massachusetts’ health exchange found that regulatory reviews for other insurance products operating under essentially the same statute often take four months or more. Judicial challenges take an average of about a year. Dave Jones, the Insurance Commissioner and a Prop. 45 supporter, has said his department’s review wouldn’t interfere with Covered California’s open enrollment, but opponents still raise questions about what happens if judicial challenges invalidate the rates of a plan sold months before on the exchange.
Beyond that, officials say the measure’s language is broad, so it’s not clear how duties would be divided between the Department of Insurance, Covered California and a third agency, the Department of Managed Health Care, which actually serves as the prime regulator for things like benefit design for health plans in the state.
“Even under the best-case scenario, enactment of this measure significantly complicates Covered California’s ability to enact health care reform,” said Susan Kennedy, a board member, during an August meeting. “I just think it’s the wrong time to add an entire layer of complication and risk to what we are attempting to achieve.”
The leading critic of that argument represents Consumer Watchdog, an advocacy group pushing Prop. 45 and Proposition 46, which would raise the cap on non-economic damages for medical malpractice and require drug testing of doctors. Nearly 700,000 small-business employees took on $250 million in “unreasonable” higher premiums between 2012 and 2013, wrote Jamie Court, the group’s president, in an Los Angeles Times op-ed. California’s own regulators deemed those increases unreasonable but were powerless to stop them, Court said.
“Their bureaucratic concerns boil down to the argument that there is not enough time for an elected official -- the insurance commissioner -- to provide a public check-and-balance process on their private negotiations,” he said. “This has not been a problem in Oregon, New York and Connecticut, where rates were dramatically cut by rate regulators for exchange members.”
Other writers have similarly derided opposition as a bureaucratic turf war. But there are key differences in the states, argues Micah Weinberg, the senior policy advisor to the Bay Area Council, an employer’s group that counts some insurers among its more than 200 members. They don't have provisions for outside judicial challenges, and their legislatures amended insurance oversight before the launch of the Affordable Care Act to conform with the law and delineate duties, Weinberg said. “Since these other active-purchaser states already had rate regulation, they designed the systems to work together,” he said.
The element of bureaucratic confusion -- and the implication that this sort of change is better left to a legislature -- has proved an effective argument with California’s major newspapers, all of which have come out against Prop. 45. The Los Angeles Times, the San Francisco Chronicle, the Sacramento Bee and others have all opposed the measure, even while supporting the idea of rate review.
At this point, the prospects for Proposition 45’s passage don’t look too positive. Opponents have outraised supporters by about six to one with the help of the insurance industry, and recent polls show waning support.