In California, Consumer Watchdog’s Prop 45 Challenges Obamacare — From the Left

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Blue Shield of California, one of the state's four major health insurers, has a sales office on the 20th floor of the Pacific Corporate Towers in El Segundo. Had the employees peered down to the plaza on a recent Tuesday morning, they would have seen a small cluster of picketers.

From 300 feet up, it would be impossible to read the signs, or hear the chants, or smell the aroma drifting off the white pickup truck that was parked below in a loading zone. But on the ground, the scent is unmistakable: manure.

Jamie Court, the president of Consumer Watchdog, shovels some into a wheelbarrow and announces that he will be delivering it to Blue Shield's executives.

"We're gonna give them back what they've been giving us for the last five months," he tells a row of news cameras. "We're not buying their bull."

Court is amped up, almost gleeful. He is dressed in work gloves and blue jeans. The top button of his shirt is unbuttoned, and a sign taped to his ball cap reads "Yes on 45."

The "Yes on 45" campaign, which Court heads up, urges voters to require government approval of health insurance rates. The campaign is one part of an ongoing struggle over the Affordable Care Act, better known as Obamacare.

What sets Court apart from most of the law's critics is that he is attacking it from the left. As he sees it, President Obama's signature reform is a betrayal of liberal ideals and a giveaway to the insurance industry.

If it passes next week, Proposition 45 will significantly change how the Affordable Care Act operates in California. It will set up the state insurance commissioner as the final arbiter of health premiums.

The insurance industry hates the idea, and has spent $57 million so far on "No on 45" ads, outspending the "Yes" campaign 14-to-1. Blue Shield alone kicked in $12 million.

Court is seeking to make the company the focus of his campaign.

"Our job really is just going to be to expose the hand of the insurance industry against us," he says. "That's almost all we have to do here."

Court is a big man with a flair for bombast — a more put-together version of Michael Moore. Over the years, he has delivered manure to congressional offices, dumped beans at an industry conference to protest "HMO bean counters" and brought live pigs to a hearing on an insurance merger. Anything, in other words, to get on TV.

When he arrives at Blue Shield, the entrance is blocked with traffic barricades and guards are checking IDs. Wheelbarrow in tow, Court asks to meet with the CEO.

"We've got a delivery for [president and CEO] Paul Markovich and the Blue Shield executives," he tells a man in a dark suit. "Proposition 45 is here to keep them accountable. Will you deliver that 


"I just manage the building," the man replies.

"They won't debate us," Court yells. "They won't even provide a spokesman. They don't want the public to know they're against 45."

The Affordable Care Act mandates near-universal health coverage. It relies on a combination of existing employer-based plans, Medicaid expansion and government-run exchanges to dramatically expand coverage to the uninsured.

It passed four years ago and was implemented this year. It remains under attack across the country. Twenty-three states have declined to expand Medicaid, denying coverage to millions of poor citizens. A handful of states has passed ballot measures protesting the law.

Only in California, however, is Obamacare being challenged from the left. Many Californians believe the law did not go far enough. A significant minority would rather see the state implement government-run, "single-payer" health care than force people to contract with insurance companies.

Court has been working on health reform for 20 years. Like a lot of people who work in this area, he supports single-payer but does not believe it will happen anytime soon. (When single-payer was on California ballots in 1994, just 27 percent voted yes.) Absent that, he is a big believer in strong rate regulation.

Proposition 45, which he wrote, would give the state's elected insurance commissioner the power to reject "excessive" rate increases. Court believes it is the critical missing piece of Obamacare.

Without it, he and his allies fear that consumers will be forced to buy private health plans that they cannot afford — and that, they believe, will have dire consequences for the law and for the dream of universal coverage.

"The biggest threat to Obamacare is the insurance companies' ability to raise premiums through the roof in California, and nobody can stop them," Harvey Rosenfield, the founder of Consumer Watchdog, says. "That will cause a rebellion in California."

In the campaign, Court is fighting not only the health insurance companies but also some Obamacare supporters. Many defenders of the law believe that market competition is enough to hold rates in check, and that adding a layer of bureaucracy to the rate-setting process could hobble the whole undertaking.

Covered California, the state-run Obamacare exchange, saw only modest premium increases this year. In TV ads, the insurance companies have wrapped themselves in Obamacare, saying the law needs time to work properly. And at least in California, the law is popular, with 60 percent support in a recent poll. For Court, it's a little frustrating.

"We're running against the insurance companies," he says. "The other side is trying to get us to run against Covered California."

A natural-born populist, Court turned to the ballot in the belief that it offered the best chance to make progressive change. But with any initiative campaign, the stars have to align. The public has to be galvanized by a problem and convinced — via advertising and the media — that a "yes" vote offers the right solution.

Right now, it's not clear that either of those conditions has been met. A recent poll, taken after a barrage of advertising from the "no" side, showed Proposition 45 at just 39 percent. And a populist without public support is just a guy with a wheelbarrow full of manure.

"The thing you worry about is the public," Court says. "The public can be misled by a lot of money on the other side. But the public tends to see through the bullshit."

Harvey Rosenfield, founder of Consumer Watchdog, protests outside Blue Shield's office in El Segundo. Activists delivered a wheelbarrow full of manure. - PHOTO BY GENE MADDAUS

  • Photo by Gene Maddaus
  • Harvey Rosenfield, founder of Consumer Watchdog, protests outside Blue Shield's office in El Segundo. Activists delivered a wheelbarrow full of manure.

Harvey Rosenfield founded Consumer Watchdog, then known as the Foundation for Taxpayer and Consumer Rights, in 1985. A Boston native, Rosenfield has been an activist since high school. He cut his teeth working for Ralph Nader, the iconic consumer advocate who would later make quixotic attempts at the presidency.

Nader's anti-corporate philosophy — and his belief that Democrats and Republicans alike are in thrall to corporate influence — still permeates Consumer Watchdog.

"I hate politicians and the cash-register politics that defines our political system," Court writes in his 2010 book, The Progressive's Guide to Raising Hell.

Though Consumer Watchdog does have some powerful friends — the California Nurses Association, Sen. Barbara Boxer, billionaire Tom Steyer, political consultant Chris Lehane — its brash tactics have a way of alienating all but its closest allies.

In his book, Court says his attitude is: "Forget the seat at the table; find the rock to throw through the window."

Consumer Watchdog's first major fights were over auto insurance. In the mid-'80s, premiums were skyrocketing. Four initiatives were placed on the 1988 ballot to deal with the problem, including ones backed by the insurance industry and the trial lawyers' lobby.

Rosenfield wrote and campaigned for Proposition 103, which established an elected insurance commissioner with the power to block rate hikes. The insurance companies spent $63 million to defeat it. At one point, Rosenfield delivered a truckload of manure to the headquarters of Farmer Brothers Insurance. With Nader's backing, Proposition 103 was the only one of the four insurance initiatives to pass.

One of the most controversial provisions of the law allows outside groups such as Consumer Watchdog to challenge a rate hike. If they win, they can charge "intervenor fees" to recoup their costs for lawyers and actuaries. The fees are approved by the insurance commissioner and paid out by insurance companies.

In the years since Proposition 103 passed, Consumer Watchdog has been by far its most prolific intervenor. In the last decade, Consumer Watchdog was awarded $11 million in fees for its work on 70 rate filing and rule-making cases. Rosenfield bills at a rate of $675 an hour.

Court argues that his organization's compensation is a small price to pay for the $3 billion that consumers have saved on premiums, thanks to his work. Nevertheless, the idea of requiring insurance companies to pay people to fight them is fair game for critics.

"It's a big racket," Steve Maviglio, a Democratic consultant and Consumer Watchdog's staunchest critic, says. "I think they're a total fraud."

Proposition 45 would extend Proposition 103 to the health insurance market — including the provision on intervenor fees. If it passes, it will create a new revenue stream for Consumer Watchdog.

Insurance companies see this as the true motivation behind the initiative, John Norwood, the dean of Sacramento insurance lobbyists, says.

"The insurance industry thinks basically that Consumer Watchdog has a total conflict of interest," Norwood says. "The bottom line is to get intervenor fees so they can have a job to do."

Micah Weinberg, a fellow at the Bay Area Council, stressed this point in a debate with Court on KQED. Speaking, as usual, in a torrent of statistics and outrage, Court repeatedly attacked Weinberg as an insurance industry shill.

"He just really got under my skin," Weinberg says. "He devolves into really nasty personal insults really quickly."

In the debate, Weinberg fired back that Proposition 45 is "a moneymaking scam."

"It totally upsets me that Jamie is wrapping himself in the mantle of righteousness and parading around," Weinberg says. "[He] will literally make millions of dollars himself by virtue of this initiative."

Jamie Court, right, joined by Carmen Balber, the Consumer Watchdog's executive director, and Dr. Stephen Loyd. - PHOTO BY TED SOQUI

  • Photo by Ted Soqui
  • Jamie Court, right, joined by Carmen Balber, the Consumer Watchdog's executive director, and Dr. Stephen Loyd.

The Consumer Watchdog headquarters are on the first floor of a two-story, courtyard-style office building on Ocean Park Boulevard in Santa Monica. The organization employs 15 people, half doing legal work and half doing political advocacy. The annual budget is less than $3 million, more than half of which comes from donations.

Court joined the group in the early '90s. He grew up in a suburb of New York City. Ironically, his father was a life insurance executive, so as a young man, Court spent time around insurance industry conventions.

"Life insurance is a very noble product," he says. "It takes a lot to sit down and sell life insurance."

Early on, it was clear that young Jamie would not follow his father's path. The way his father talked about "the company" was too reverent for him. Instead, Jamie grew a ponytail and cultivated a passion for The Grateful Dead. The first chance he got, he headed to California.

He attended Pomona College, where he helped set up shantytowns in an effort to get the school to divest from South Africa. After graduation, he worked for a while as a community organizer and tried to write screenplays. He ended up at Consumer Watchdog after spotting an ad in The Nation, saying "Hell-raisers Wanted."

Today, he is the group's president. He is paid $269,000 a year, according to its most recent tax return. Rosenfield, a lawyer, is paid up to $450,000.

The office walls are decorated with news clippings and campaign paraphernalia. On one wall are pictures of celebrities and politicians who have supported the group over the years, including actors Dennis Quaid and Warren Beatty.

Much of what Consumer Watchdog does, at least lately, is hold press conferences. On a recent Monday morning, Court invites the media to the offices to hear from Dr. Stephen Loyd. Court is excited to have found him, through an article in USA Today. He says that Loyd is the only doctor in the country who will speak candidly about his own drug addiction. Court had flown him out that day from Tennessee.

In a Southern drawl, Loyd details his struggles with Xanax, Valium and Vicodin, saying that by the time he hit bottom, he was taking 100 pills a day.

"I thank God every night that I go to bed that someone intervened on me to help me," Loyd says.

Loyd is speaking in favor of Proposition 46, which is the other ballot measure Consumer Watchdog is pushing this fall. In a fit of optimism, Court decided to run two David-and-Goliath campaigns at the same time.

Proposition 46 would require drug testing for doctors, crack down on "doctor shopping" by prescription-drug abusers and, most notably, quadruple the cap on damages for pain and suffering in malpractice cases, from $250,000 to $1.1 million.

Trial lawyers have been trying to do away with the cap since it was imposed 40 years ago. But in this campaign, they are being outspent 6-to-1. Opponents include hospitals, medical groups and the Doctors Company, which is the state's major malpractice insurer.

All told, Court's opponents have raised $115 million to defeat the two measures — far more than has been raised for all other statewide campaigns combined.

Asked about the strategy of splitting his money, time and attention between two initiatives, Court says, "I don't know if it was strategy so much as adrenaline."

After the press conference, Court and Rosenfield show off the posters from past campaigns. Consumer Watchdog was involved in HMO reform in the 1990s, opposed energy deregulation and tried to implement public financing of state campaigns. A longtime nemesis is George Joseph, the 93-year-old chairman of Mercury Insurance.

"We couldn't figure out who's Ahab and who's Moby Dick between Harvey and George Joseph," Court says.

Court has made plenty of enemies of his own in the years since he took the reins of the organization. Maviglio, a former spokesman for Gov. Gray Davis, dates his antipathy toward Court to the period when Court was attacking Davis over energy deregulation.

But the bitterness was sealed in 2007, when Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Núñez tried to reform health care. Their bill would have required most Californians to obtain health insurance. The "individual mandate" was already part of Massachusetts' health reform, and later became a key feature of Obamacare.

Consumer Watchdog was vehemently opposed to it, and blasted the compromise.

"They killed it," says Maviglio, who was working for Núñez at the time. "All the major groups were on board with that plan, and then they came in."

Court didn't just oppose Núñez's compromise. He also went after Núñez, stoking news stories about his use of campaign funds to take lavish trips abroad.

"They're a so-called consumer advocacy group," says Maviglio, who at one point ran a website called "They have zero policy impact in Sacramento. They don't have a paid lobbyist. They just do press conferences and scream and shout."

Court prides himself on being an outsider. He writes about once getting thrown out of a legislative hearing for bringing up a member's campaign contributions from the insurance industry.

"He's been up here a lot over the years," Norwood, the insurance lobbyist, says. "He doesn't usually do himself a lot of favors."

Jamie Court,  president of Consumer Watchdog, appears at a press conference supporting Proposition 46. - PHOTO BY TED SOQUI

  • Photo by Ted Soqui
  • Jamie Court, president of Consumer Watchdog, appears at a press conference supporting Proposition 46.

Court has been pushing for health care rate regulation for a decade. He found an ally in Assemblyman Dave Jones, D-Sacramento, and together they tried four times to pass legislation on the issue.

"All four of those bills were killed by the very powerful and influential health insurance and HMO lobby," says Jones, who is now the state insurance commissioner. "It's not a reform that can be passed legislatively because of the influence they have in the Legislature."

On the fourth try, in 2011, the bill was thwarted by Sen. Ed Hernandez, a Democrat from West Covina, who chairs the powerful Senate Health Committee.

"I had a hearing on it," Hernandez says. "I wasn't convinced. I believe you have to allow natural market forces to work itself out rather than setting rates."

Hernandez says he also was worried about the intervenor provision, and the effect that might have on the new insurance exchange.

"Anybody could intervene, not only consumer groups," he says. "It could be a right-wing group. It could be the KKK. If there was somebody who really wanted to derail health care in California, they can do it."

Hernandez has taken thousands of dollars from insurance companies and medical groups over the years. He also rents out some commercial property to Kaiser Permanente, the state's largest HMO.

When Hernandez helped defeat the rate regulation bill, Consumer Watchdog aired a 30-second attack ad on cable stations in his district calling attention to the money he had received from Kaiser.

"I take contributions from everybody. It's not just insurance companies," Hernandez says. "If you want to talk about transparency, they put out mail — hit pieces — and you have no way of proving what the source of their income is. Everything I do is transparent. Where is your money coming from to attack? And it's interesting they always attack the Latinos. They don't attack anybody else."

Court says he doesn't disclose his donors because his opponents would bring pressure to bear on them. He still gets a kick out of the episode. "We ran this ad 300 times and he went ballistic. It was a lot of fun, though."

By that point, the Affordable Care Act had passed, and it included an individual mandate. In his book, Court calls this one of a "series of betrayals" perpetrated by Obama.

"That upped the stakes and the ante, when the federal government said we needed to have mandatory health insurance," Court says.

He had hit a brick wall in the Legislature, so he decided to take the issue to the voters.

"We played the inside game for years, and it got us nowhere," Rosenfield says. "I've been a consumer advocate for 35 years. I've never seen the inside game help anyone but the special interests."

They initially wanted to place the issue on the 2012 ballot, but some difficulty in verifying signatures forced the issue to 2014.

But they are still confronting the same arguments that Hernandez raised in 2011. Sometimes those arguments come from fellow consumer advocates, who have invested a lot of energy in setting up Covered California and worry about anything that might disrupt it.

"Getting the Affordable Care Act off the ground is probably the most complex thing I've been involved with," Betsy Imholz, of Consumers Union, says. "Our feeling is we probably ought to give it a little time to see if it works itself out."

Peter Lee, the executive director of Covered California, also has expressed serious concerns about Proposition 45, saying it could harm the exchange. Jones, the insurance commissioner, has argued that his office will be able to coordinate with the exchange if the initiative passes.

Court is frustrated by this whole argument, and especially with supporters of health reform who "treat the Affordable Care Act like a child they don't ever want to let out of the house."

He also has begun attacking Lee. In an opinion piece in the L.A. Times, he accused Lee of "collaboration" with the health insurance companies. He also trumpeted an Associated Press investigation that found Covered California had awarded $184 million in no-bid contracts, including $4.2 million to a consulting firm with close ties to Lee.

Court called a press conference to urge the attorney general to open an investigation. He also has pointed out that many staff and consultants at Covered California used to work in the insurance industry. "They've got Covered California really wired," Court says.

At one point, Rosenfield vents about "those hacks at Covered California."

"Those guys are political appointees, and they'll all be working for the insurance industry in five years," he says.

One point that Court makes over and over again is that 35 other states already have rate regulation. Therefore, the argument goes, it must not be that radical a step.

But that raises another question. And it's the one that, all other arguments aside, consumers should care about most. If 35 states already have rate regulation, and insurance costs have spiraled out of control anyway, does rate regulation work?

"That's the $64 billion question," says Gerald Kominski, director of the UCLA Center for Health Policy Research. "Has rate review been effective? The evidence is mixed. I wish I could say the best scientifically constructed analyses show clearly that prior review and authority to deny rates slow growth. The evidence isn't there, at least not strongly."

Part of the issue goes to the historical reasons for insurance regulation. In general, rate regulation was established in order to ensure solvency of insurance companies. Regulators have historically been concerned not with keeping rates low but with making sure that rates are high enough to cover losses. So even states with strong rate-regulation laws may not be using them to hold down the cost of insurance.

Another issue is that medical costs have spiraled out of control. It may be the case that insurance companies can't do much more than they are already doing to hold down expenses.

"The insurance companies are in the middle," says Brent Fulton, a UC Berkeley professor, who is working on a comprehensive study of rate review. "They get their rates from hospitals, medical groups and medical-device companies. All of those have been inflationary."

Court argues that if insurance companies are prevented from implementing exorbitant rate increases, that will force them to pressure health care providers to drive down costs.

"They'll weed out the fraud and the abuses. They'll come after irrational hospital charges," Court says. "The insurance industry and the medical establishment do not want to talk about cost controls because that means they make less money."

Opponents argue that the only way to keep rates down is through competition. And they fear that adding layers of bureaucracy could lead some carriers to offer fewer products or drop out of the market. That would have the perverse effect of sending rates up.

Court argues that with only four companies — Anthem Blue Cross, Blue Shield, Kaiser and Health Net — controlling 90 percent of the market, competition is insufficient.

Kominski, of UCLA, says he is deeply conflicted about Proposition 45. The Affordable Care Act seems to be working so far, so he is concerned about tinkering with it.

"If you asked me five or six years ago, I'd just be wholeheartedly in support of Proposition 45," he says. "I happen to be on the fence on this one. My attitude is 'wait and see.' I'm not opposed to it, but I'm not sure we need it at this point in time."

Whether Proposition 45 succeeds or fails, Court says it's inevitable that some other reforms — such as a government-run "public option" on the health care exchange — will come before voters sooner or later.

"You need a public entity to keep them honest," he says. "You also need rate review. Regardless of the fate of 45, there will be a public option. It's inevitable that insurance companies are going to put consumers in a position where more and more of them can't afford what they're peddling."

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