A quarter-century ago, a then-obscure consumer group in Santa Monica led a revolt at the ballot box that changed the world of insurance in California forever.
Spurred by skyrocketing auto insurance bills, Consumer Watchdog sponsored Proposition 103, which created an elected insurance commissioner with the power to reject auto and homeowner rate hikes. And despite an $80 million campaign by insurers, California voters narrowly passed the 1988 ballot measure.
Now, 26 years later, Consumer Watchdog is again taking on the powerful insurance industry — this time with Proposition 45, which would give the commissioner the authority to regulate health insurance rates.
But this year is different. The politics of Obamacare — the Affordable Care Act — have changed everything: Even many liberal Democrats who normally would support strict regulation of health care rates are now allied with the insurers.
"The choice that Proposition 45 presents is not between oversight on one hand and no oversight on the other," said Dan Schnur, who directs the Unruh Institute of Politics at the University of Southern California. "The question is who would provide that oversight — and that is not necessarily an issue that divides along party lines."
Many Obamacare boosters warn that it could muck up the state's successful implementation of the landmark health law, overseen by the Covered California health insurance exchange. Its board recently negotiated a relatively modest rate hike for its 1.2 million enrollees next year.
Proposition 45 would affect 6 million Californians who buy their own health insurance or work for a small business. Most of the state's residents are covered by their employer or through government programs such as Medi-Cal and Medicare.
Schnur said he believes the fate of the measure rests on whether voters see health care costs as a top priority in this election.
Proponents say the issue is ripe because Californians' health insurance premiums have risen five times faster than the overall rate of inflation over the past decade.
"The federal government says we have to buy health insurance," said Jamie Court, president of Consumer Watchdog. "But there is no guarantee under state or federal law that is has to be affordable."
A report last year by the Consumer Federation of America showed that Proposition 103 has saved Californians more than $100 billion over the past 25 years.
Court said small businesses would benefit from Proposition 45 because they would pay less for their employees' insurance. But most business groups have come out against it.
The California Small Business Majority, a group that represents 2,500 small businesses, has supported insurance rate regulation bills in the past. But it's opposed to Proposition 45.
David Chase, spokesman for the group, said it would hurt Covered California's ability to negotiate rates.
He noted that the rate increases the Covered California board approved for 2015 — an average of 4.2 percent — means "they are effectively holding prices down," he said. "And we don't want to do anything that takes away their power."
While most members of Covered California's board have publicly denounced the measure, the board last week decided not to take a position on it after being urged by many health care activists to stay neutral.
Proposition 45 proponents, including Insurance Commissioner Dave Jones, say the small rate hike for 2015 forced the exchange's health insurers to "push the pause button" on rates to prevent enraging voters who might punish them at the polls.
In an interview, Jones cited a study his department released over the summer that compared individual health insurance rates from 2013 with those offered by Covered California for 2014, when the first Obamacare policies took effect. The report found that rate hikes for individual insurance policies ranged from 22 to 88 percent.
Jones, a former Democrat state assemblyman from Sacramento, said legislators have tried for more than a decade to pass legislation regulating health insurance, but those efforts were stymied by industry lobbyists.
Now running for his second term as commissioner, Jones said the industry's fierce opposition to Proposition 45 is fueled by fear that its passage would lead to rate regulation of health plans offered by large employers. "They want to continue the unfettered ability to make outrageous profits at Californians' expense," he said.
Robin Swanson, a spokeswoman for Proposition 45 opponents, countered that the Affordable Care Act requires insurance companies to disclose how much they spend on health care and how much they spend on administrative costs. Should a company spend less than 80 percent of premiums on medical care, she said, it must rebate the portion of premiums that exceeded the limit.
Besides, she said, decisions about health care premiums should not be made by a politician who could be influenced by campaign donations from insurance companies, among others.
"Covered California is doing a great job enrolling people," Swanson said. "The five people on its board offer more checks and balances than one insurance commissioner."
Proponents point out that at least 35 other states regulate health insurance rates and that insurance commissioners or departments in Oregon, Connecticut, Maryland and New York recently reduced 2015 rates proposed by insurers who sell Obamacare plans.
Like Proposition 103, Proposition 45 would allow anybody — individual consumers, public advocate attorneys — to challenge proposed rates. And insurance companies would be required to pay the legal fees of the "intervenors" who successfully challenge the rate.
Californians Against Higher Health Care Costs, the anti-45 campaign group funded largely by the four major insurers offering Covered California plans, says Consumer Watchdog's measure is misguided and self-serving.
Swanson, the group's spokeswoman, said while other states have health insurance regulators, none have intervenors — who she said would delay down Obamacare enrollment deadlines by adding more bureaucracy to the annual rate-setting process.
She also pointed out that Court's group has received at least $14 million over the years in intervenor fees.
Court dismissed the issue as a red herring. The fees Consumer Watchdog has gotten from insurers, he said, are minuscule compared with the billions Proposition 103 has saved consumers.
A Field Poll released two weeks ago showed support for the measure had dropped to 41 percent from 69 percent early in the summer after opponents launched statewide ad campaigns.
Insurers since 2012 have donated at least $37 million to the anti-45 campaign — which still has an estimated $30 million in the bank.
Proponents, on the other hand, have raised $3.5 million but spent most of it getting Proposition 45 on the ballot. So they had only about $200,000 to spend just two weeks ago. But their campaign received a $1 million infusion late last week from the California Nurses Association.
Court said his group will air TV ads in the Bay Area beginning next week.
Sherry Bebitch Jeffe, a veteran political analyst at the University of Southern California, said one reason Proposition 45 may not be gaining traction is that public outrage over health insurance "rate shock" has diminished since Obamacare's first open-enrollment period last fall.
"It's quieted down," she said. "Things are working now."
The Unruh Institute's Schnur said most Californians will have a hard time making sense of the politics of Proposition 45. Most, he said, don't know who the insurance commissioner is or who is on the Covered California board.
"So the challenge for the initiative's proponents," he said, "is convincing Californians that there is a problem that needs to be fixed."
Contact Tracy Seipel at 408-920-5343. Follow her at Twitter.com/taseipel.
WHAT PROPOSITION 45 WOULD DO
Mandate that health insurers submit their rates for individual and small business plans to the state Department of Insurance for review and approval.Require insurers to publicly justify their rates.
Allow the public to challenge rates in court.
Source: California Secretary of State's Office
MONEY RAISED IN INSURANCE BATTLE
2012: $2 million
2013-2014: $1.5 million
2013-2014: $37.5 million
Source: California Secretary of State's Office