Regulation of insurance companies, introduced by Proposition 103, could repair a loophole in the Affordable Care Act.
"We didn't do a good enough job in terms of how we crafted the law," an apologetic President Obama said this month, shortly after millions of Americans got notices from their health insurance companies that their current policies were going to be canceled because the policies didn't comply with the minimum standards of the Affordable Care Act. Worse, the federal website where people were supposed to be able to buy replacement coverage was still barely functional.
Last week, confronting a perfect storm of policy snafus and public indignation, the president announced that he would allow health insurers to renew current policies for an additional year. But he left the final decision to the companies or state authorities, who promptly warned that the result would be higher premiums.
That, not the cancellations or the HealthCare.gov website, is the fundamental problem with the Affordable Care Act: The law places no limits on the price insurance companies can charge for the coverage we are required to buy. This was no drafting error. In 2010, neither Congress nor the White House wanted to risk the opposition of the powerful insurance industry.
Thus it's no surprise that the insurers are now jacking up premiums and copays while limiting prescription drug benefits and dumping doctors and hospitals from their networks.
California lawmakers made a similar egregious error in 1984 when they passed a law requiring residents to buy automobile insurance but failed to regulate prices. So, of course, the insurance companies took advantage, imposing double- or triple-digit premium increases. A voter revolt ensued.
And therein lies the solution to the current healthcare law debacle.
Twenty-five years ago this month, angry California voters passed a ballot measure to stringently control automobile, as well as home and business, insurance premiums. An unprecedented $63-million campaign by the insurance industry could not stop the grass-roots rebellion. In a historic upset, Proposition 103 swept away decades of deregulation, discriminatory practices and barriers to competition in the insurance marketplace.
Insurance companies were required to open their books and publicly justify rate increases before they took effect. To guarantee that industry lawyers and lobbyists would not derail the new law, the measure made the insurance commissioner an elected post and further empowered consumers to hold insurance companies directly accountable if they violated the law.
The voters also enacted critical protections against any last-minute chicanery by insurance companies before implementation of their reforms. For example, to prevent opportunistic price-gouging before Proposition 103 went into effect, the law imposed a one-year postelection freeze on rate increases, plus a 20% across-the-board premium rollback. It also barred insurance companies from arbitrarily canceling or refusing to renew auto policies. These safeguards, missing from the Affordable Care Act, made the transition from deregulation to price protections a smooth one. And it netted Californians $1.2 billion in refunds for unjustified price increases.
A study issued last week by the Washington-based Consumer Federation of America quantifies Proposition 103's pocketbook impact. It found that California is the only state in the nation where the average auto insurance premium is lower today than it was in 1989. Once the second-most expensive state for auto insurance in the nation, California now ranks 30th, according to the report. The federation also found that California motorists have saved more than $100 billion since 1989, an average annual savings of more than $8,000 for every household in the state. The report concludes that under Proposition 103, "California has provided auto insurance consumers the most effective and protective regulatory system" in the United States.
Equally important is the initiative's democratic impact. Proposition 103's mandate for fairness in insurance pricing practices has become ingrained in California's public policy. The measure built a strong political base by giving both middle-class and low-income voters an equal stake in its reforms. And its success has enhanced public confidence in state government and in regulation.
That's a stark contrast to Obamacare, at least so far. The Affordable Care Act offers subsidies to low-income consumers — a valuable investment by taxpayers in America's human infrastructure — but the absence of price protections has deeply disturbed a middle class abandoned by Washington after the 2008 economic collapse and still struggling to pay the bills.
Proposition 103 did not originally apply to health insurance, unfortunately. To remedy that, Consumer Watchdog has qualified an initiative for the November 2014 ballot that would place health insurance companies doing business in California under Proposition 103's regulatory controls. The nation will be watching as California voters once again lead the way in insurance reform, this time with a state-based strategy to close the loophole in the Affordable Care Act.
Harvey Rosenfield, founder of Consumer Watchdog, is the author of Proposition 103. Originally published in the Los Angeles Times on Tuesday, November 19, 2013. Online version can be viewed here.