In Depth on Proposition 45: Healthcare Insurance. Rate Changes

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Ballot Measure to which this in depth article is connected: 

Proposition 45 would require the Insurance Commissioner’s prior approval of changes in health insurance rates.

2012 VS. 2014

Prop. 45 was originally intended for the November 2012 ballot, but signature validation was not completed in time, so instead it qualified for the 2014 general election, but with some provisions that reflect its earlier timing. For example, November 6, 2012, the effective date for requiring approval of rate changes, would make this requirement retroactive, and rates in effect on that date could be subject to refund retroactively.

Also, Prop. 45 includes provisions that would prohibit the use of certain criteria for health AND automobile AND homeowners insurance. The target of this “poison pill” was Prop. 33, an initiative on the 2012 ballot that would have weakened auto insurance protections for consumers. Since Prop. 33 did not pass, these provisions in Prop. 45 now have very little potential effect.

PROP. 103, 1988

In 1988, four initiatives addressing auto insurance qualified for the ballot. Only Prop. 103 passed. It was drafted by Harvey Rosenfield, the founder of Consumer Watchdog, a nonprofit organization that is the primary supporter of Prop. 45. Prop. 45 models rate-change provisions in health insurance on the changes in auto and homeowner insurance rates contained in Prop. 103.

CDI, DMHC, AND HEALTH CARE COVERAGE TYPES

Both the California Department of Insurance (CDI) and the California Department of Managed Health Care (DMHC) regulate carriers providing health care coverage.

Some coverage follows the traditional insurance model: the insurer pays defined benefits for treatment of covered conditions, such as illness or injury. This “promise-to-pay” model is sometimes called “fee for service” insurance. It has traditionally been regulated by the CDI.

An alternate model is the prepaid health plan. For a fixed fee, paid in advance, the enrollee receives health services from the plan’s employees or from a tightly controlled network of contracted providers. This “promise to deliver care” type, which includes HMOs (Health Maintenance Organizations), has been regulated by the DMHC since the department was created in 1999.

Over time, the differences between the two models have blurred as a kind of hybridization has occurred. For example, a Preferred Provider Organization contract (PPO), which offers enrollees reduced out-of-pocket costs for using certain providers, has been associated with health insurance plans and subject to CDI licensure. Now, however, some health service plans regulated by the DMHC are able to offer PPO contracts.

Whichever department regulates a company, and whichever model of health care coverage it provides, the Insurance Commissioner would approve or reject rate changes if Prop. 45 passes.

CONTROVERSY WITH COVERED CALIFORNIA (AKA THE AFFORDABLE CARE ACT)

Members of the board of Covered California have expressed their opposition to Prop. 45, fearing that it would interfere with their ability to negotiate rates with health insurance companies, and that it could jeopardize their newly enacted operation. According to the Los Angeles Times, the Insurance Commissioner has countered by remarking that more than 35 other states have enacted health insurance rate regulation with no negative impact on the Affordable Care Act, and other supporters of Prop. 45 have expressed the opinion that Covered California has been “too cozy” with the insurance industry. According to the California Legislative Analyst, the new rate approval process in Prop. 45 could result in additional costs for Covered California, and possibly delays that would affect the ability of Covered California to offer certain products in a timely manner, but it is unclear whether such delays would occur, or if they do occur, how often that would happen.

Arguments In Opposition: 
  • Prop. 45 adds another level of expensive bureaucracy to health care regulation.
  • Decisions about health care should not be made by a politician.
  • Marketplace negotiations under the ACA could be harmed by the new regulatory approach.
Arguments In Support: 
  • Spiraling health insurance rates have risen many times faster than inflation for more than a decade.
  • Prop. 45 will control health insurance costs just as Prop. 103 successfully controlled auto insurance costs.
  • Transparency required by Prop. 45 will help prevent unreasonable rate hikes.
More about Supporters: 

Yes on 45—Consumer Watchdog Campaign • www.YesOn45.org

Supporters of Prop. 45 include:

(Signers of official arguments are in bold.)

  • Deborah Burger, President, California Nurses Association
  • Jamie Court, President, Consumer Watchdog
  • Dolores Huerta, civil rights leader
  • Dr. Paul Song, Co-Chair, Campaign for A Healthy California
  • Harvey L. “Hank” Lacayo, State President, Congress of California Seniors
  • Harvey Rosenfield, author of 1988 insurance reform Proposition 103
  • U.S. Senator Dianne Feinstein
  • U.S. Senator Barbara Boxer
  • Insurance Commissioner Dave Jones
  • Superintendent of Public Instruction Tom Torlakson
  • Consumer Federation of California
  • Consumer Attorneys of California
  • California Alliance for Retired Americans
  • San Diego Hunger Coalition
  • Coalition for Economic Survival
  • California Democratic Party
  • Physicians for a National Health Program—California
  • United Teachers of Los Angeles (UTLA)
  • United Food and Commercial Workers—Western States Council

Major Financial Contributions (Financial contributions to ballot measure campaigns can change frequently—readers may check for more recent contribution updates by visiting votersedge.orgFair Political Practices Commission and Cal-Access.)

(as of September 24, 2014 total: $979,200)

  • Consumer Watchdog ($500,000)
  • Greene Broillet & Wheeler, LLP ($125,000)
  • National Nurses United ($75,000)
  • American Federation of Teachers ($25,000)
  • United Brotherhood of Carpenters and Joiners of America ($20,000)
  • California School Employees Association ($10,000)
  • KCMKC ($6,825)
  • Consumer Attorneys of California ($5,121)
  • California Democratic Party and Affiliates ($3,746)
  • Orange County Employees Association ($1,500)

From Voter’s Edge:

http://votersedge.org/california/ballot-measures/2014/november/prop-45/funding

More about Opponents: 

No on 45—Californians Against Higher Health Care Costs • www.StopHigherCosts.org

Opponents of Prop. 45 include:

(Signers of official arguments are in bold.)

  • Monica Weisbrich, R.N., President, American Nurses Association of California
  • José Arévalo, M.D., Chair, Latino Physicians of California
  • Allan Zaremberg, President, California Chamber of Commerce
  • Gail Nickerson, President, California Association of Rural Health Clinics
  • Robert A. Moss, M.D., President, Medical Oncology Association of Southern California
  • Kim Stone, President, Civil Justice Association of California
  • California Medical Association
  • California Hospital Association
  • California Orthopaedic Association
  • California Association of Health Plans
  • California Association of Health Underwriters
  • California Association of Marriage and Family Therapists
  • California Chapter of the American College of Cardiology
  • California Children’s Hospital Association
  • American Academy of Pediatrics, California
  • American Congress of Obstetricians and Gynecologists District IX
  • American College of Physicians California Services Chapter

Major Financial Contributions (Financial contributions to ballot measure campaigns can change frequently—readers may check for more recent contribution updates by visiting votersedge.orgFair Political Practices Commission and Cal-Access.)

(as of September 24, 2014 total $37.6 million)

  • Kaiser Permanente ($14,590,350)
  • Wellpoint ($12,500,000)
  • Blue Cross Blue Shield Association ($9,963,200)
  • Health Net ($135,000)
  • National Association of Health Underwriters ($113,000)
  • California Association of Health Plans ($60,000)
  • Word & Brown ($52,000)
  • WarnerPacific Insurance Services ($50,000)
  • UnitedHealth Group ($30,000)

From Voter’s Edge:

http://votersedge.org/california/ballot-measures/2014/november/prop-45/funding