Insinuations of greed abound in the fight over health insurance regulation

PASADENA, CA – State Sen. Ed Hernandez, D-West Covina, responded Tuesday to a television ad slamming him for an alleged conflict-of-interest – and what appears to be an unflattering lack of concern for constituents.

The conflict in question is the lawmaker's business connection to Kaiser Permanente – he leases office space in Baldwin Park to their outreach division for several thousand dollars a month – and his position as chair of the Senate Health Committee.

The issue ignited when Hernandez objected to provisions of a bill, AB 52, mandating state regulation of health insurance rates. Kaiser vehemently opposed the bill, and advocacy group Consumer Watchdog has now launched an attack, demanding Hernandez recuse himself.

The senator, a practicing optometrist, shrugs off the accusation, explaining that he fully discloses all his income and that a pre-existing lease agreement with the HMO giant is irrelevant.

"Where there would be a conflict, is if there was a piece of legislation that dealt only with Kaiser Permanente and there was an economic gain for me. There I should recuse myself," he said.

But with legislation like AB 52, which deals with "an industry-wide issue or a policy issue," he argues there is no conflict.

"I've always done full disclosures of what I own with regard to my 700 forms," Hernandez said. "I don't base my votes on Kaiser Permanente being a tenant; I base it on what's best for public policy."

Consumer Watchdog would like him to see things differently – and they spent $5,000 on a two-week television ad to "expose" Hernandez to his constituents.

The ad, which will run 266 times this week in the San Gabriel Valley, shows 30 seconds of a hearing before the Senate Health Committee, in which a district resident testifies in favor of AB 52 – describing how his family was forced to choose their mortgage over his mother's health insurance.

Hernandez asks him where he lives – and, hearing "Monterey Park," chuckles as he tells the constituent he'll no longer be in his district after this year's redistricting, eliciting hearty laughter from the room.

Then Hernandez simply says "next" and moves on to the next witness.

Doug Heller, executive director of Consumer Watchdog, calls Hernandez's behavior "disgusting" and charges the "deep conflict of interest" should have led him to recuse himself.

On Tuesday Hernandez fired back, claiming Heller's organization stands to make millions of dollars from lawsuits if AB 52 is approved by intervening on behalf of consumers, not necessarily with their consent.

"For them it's about money. They want this bill, it's absolutely the highest priority, because if it passes the way it's written they'll be able to make millions," Hernandez said.

"If you want to talk about disclosure, why don't they disclose who they get money from to do these hit pieces (and) what do they do with their profits?"

Since 2000, a similar provision to the one proposed in AB 52 has allowed Consumer Watchdog to intervene and challenge insurance rate hikes in other industries – efforts Heller claims have saved consumers more than $2 billion.

Of the $5 million or so they've collected for that work, he said "almost exactly half" has gone to paying independent expert witnesses.

Democratic strategist Steven Maviglio dismissed Consumer Watchdog as "publicity hounds" and pointed out that the organization has received hundreds of thousands of dollars from special-interest groups but won't reveal their funding sources.

"This is pure political retribution because Hernandez is trying to manage those (provisions to allow intervenor fees) and have an open book on the funding they're getting … It's pure self-interest on their part."

In a Sept. 20 letter to Heller and Consumer Watchdog President Jamie Court, Senate Pro Tem Darrell Steinberg, D-Sacramento, calls the group's accusations "ill-conceived and misinformed," expresses full support for Hernandez and for the bill – which he notes will still need work before getting enough votes to move out of the Senate.

While it was in committee, Hernandez gave the bill a courtesy vote while he tried to work out some amendments with its author, Mike Feuer, D-West Hollywood, explaining he wanted a more "holistic approach" and a set of transparency measures, including actuary review of some of the regulatory process.

"I have no problem with an entity suing on behalf of consumers," Hernandez said, "but when an entity is going to benefit from it financially there should be (transparency)."

Heller calls AB 52 "the single most important consumer and patient protection bill of the year," and claims Hernandez was "politically savvy in the way he choked off this legislation" but still avoided an unpopular "no" vote against insurance regulation.

But Hernandez claims the country is already on track for federal insurance rate regulation and that AB 52 won't expedite anything.

He rather points to a measure he supported earlier this year for basic health care – SB 703, which would have allowed working class families to buy health insurance for $20 or $30 a month – a bill he claims was held up in appropriations due to lobbying efforts of Kaiser Permanente and other insurance behemoths.

To some transparency advocates, though, the connection drawn by Consumer Watchdog is a typical misstep voters have come to expect from the Legislature – especially since it exempted itself from the same disclosure and transparency rules other public officials are subject to under the Political Reform Act.

Peter Scheer, executive director of the First Amendment Coalition, said conflicts-of-interest like the one he sees in Hernandez's case should be "punished in the political process," but admits there's no illegality in question.

"The only corrective is disclosure," Scheer said.

"The reality is that we expect our politicians in the Legislature to be whores. That is the expectation in the American political system."

He added that this particular incident is worth airing "because it should embarrass the Legislature because they should behave better."

Phillip Ung, of California Common Cause, took a similar stance.

"I think any common sense California voter would think this is a conflict, an unethical practice. Obviously the Legislature and the leaders on both sides have a different idea."

He pointed out that Consumer Watchdog's ad is not taking place during an election year, or even during a legislative session.

"My assumption is they're trying to figure out why their bill got stalled in the Legislature – and unfortunately, Sen. Hernandez seems to be in a position where there's an ethical conflict of interest. So it makes him an easy target," Ung said.

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