Prop. 45: Will It Help Or Hurt Consumers?

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Proposition 45 on the November state ballot would give the California insurance commissioner’s office the same power to regulate health insurance costs as the office has over auto and homeowner rates.

Opponents argue that the proposition's timing and approach are wrong, while proponents say that Covered California doesn't have enough power to negotiate rates.

If adopted by California voters, Prop. 45 would allow the insurance commissioner the power to reject excessive rate hikes for health policies sold to individuals, families and employees of small businesses. It would not affect those covered by Medicare, Medi-Cal or employee insurance provided by large companies. 

Additionally, the initiative  would require insurance companies to: publicly justify their rate increases; allow the public to request the insurance commissioner conduct a hearing on a particular increase; and it would mandate the commissioner grant such a hearing whenever a rate increase exceeds seven percent. 

"This is crucial to make sure that the expanded access to health care that we’ve enjoyed here in California isn't turned back as soon as prices get too high," says Carmen Balber, executive director of  Consumer Watchdog, the Santa Monica-based non-profit group that's sponsoring the initiative.

Opponents of Prop. 45 say while the initiative’s intentions may be good, its approach and timing are all wrong.

"We need to take steps to control health care costs absolutely, but prop 45 is just fundamentally inconsistent with the system that we’ve got set up in California," says Micah Weinberg, health policy analyst with Bay Area Council –  a pro-business advocacy group that opposes Prop. 45. 

Weinberg says a more effective way to keep a lid on skyrocketing health insurance premiums is let  the state-run health insurance exchange, Covered California, keep doing its job. 

"The rate of growth of health insurance is substantially below what it was before health care reform.," he says, adding that passing Prop 45 now could undermine that progress by changing the rules before the game has had a chance to really start.

But Consumer Watchdog's Balber disagrees. She says Covered California’s power to negotiate isn't enough.

"Someone with only the power to negotiate is completely unable to force a reduction in an excessive rate increase," she says. "The only leverage they have is to threaten to throw them out of the exchange. And it’s inconceivable that the exchange would throw out one of the major health insurance companies in California."

Balber points to the success of Prop 103, which Californians passed back in 1988. That measure, also sponsored by Consumer Watchdog, created the elected office of insurance commissioner with the power to regulate auto and homeowner rates.

So far that measure has saved Californians more than 100 billion dollars, according to a 2013 report by the Consumer Federation of America.  

But Prop 45’s opponents say comparing auto and homeowners insurance to health insurance is an apples and oranges proposition.

"Health insurance and auto insurance could not be more different," Weinberg says. "(With) auto insurance we build into the premium the risk factors –  like driving experience- and health insurance, we’re not allowed to build any of that into the premium."

Weinberg says there’s a far more complex array of factors driving health insurance premiums, including how much insurers must pay doctors and hospitals for their services in a given geographic region of the state. 

Weinberg says giving the insurance commissioner the power to override rates negotiated by Covered California would be bad for consumers.

"One of the things that I think is important to point out about rate regulation is that it doesn’t work," says Weinberg, who cites New York state as an example.

New York is among the majority of states that allow health insurance rate regulation, as Prop. 45 would do. Yet, he says, New York’s 2015 average insurance premiums climbed 6.9 percent, while California’s have gone up only about 4.2 percent.

But Brietta Clark, a professor of health law at Loyola Law School believes that has less to do with new market forces created by Covered California's negotiation of rates and more to do with the health providers themselves deciding it' prudent to keep a check on prices this year –especially in the face of a ballot initiative like Prop. 45.

"If you just look at, ‘Are rates reasonable now?' That doesn’t tell us whether or not the insurance company will try to hike them up later in an unreasonable way," she says. 

The state's largest health insurance companies are funding the opposition to Prop 45 and have raised $38 million to defeat the measure.   The Yes on 45 campaign, by contrast, reports that it's raised roughly $3.5 million.

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