As state insurance commissioner, Dave Jones has the power to regulate rates for car and homeowner insurance. He can halt an insurer’s proposed increase if the company can’t justify the higher cost.
Health insurance is another matter.
The former Democratic lawmaker has spent years working to give elected commissioners regulatory authority over health insurance rates. He’s asking voters in November to give him that ability with Proposition 45, asserting it’s the only way to slow down spiraling premium costs.
Insurers, long opposed to the idea, now are making a new argument against it, saying the Affordable Care Act complicates his effort. Under the health care law, they argue, California already has a new system in place to manage the health insurance market.
“California just established a new independent commission responsible for negotiating health plan rates on behalf of consumers and rejecting health plans if they’re too expensive,” says the proposed argument against the initiative made public last week.
Officials at the state exchange, known as Covered California, have also raised a host of questions about how Jones’ plan would work now that their market is in place.
Diana Dooley, secretary of the Health and Human Services Agency and chairwoman of the exchange board, emphasized that she plans to stay neutral on Proposition 45. But she noted the initiative was drafted years before the state exchange had adopted various consumer protections.
“This looks like a rate regulation regulating the old market without taking into consideration what the advantages are of the Affordable Care Act,” Dooley said. “I am really working to try to bring down the cost of care. That would bring down premiums.”
Health insurance rates have increased more than 150 percent in California in the last decade, a figure greater than five times the rate of inflation, Jones said. Not only is the measure compatible with the new health law, he argues, it’s the missing piece. He said that’s why Democratic Sens. Dianne Feinstein and Barbara Boxer of California, strong supporters who helped craft Obama’s plan, also are behind Proposition 45.
“There is no provision in the Affordable Care Act or in state law to stop health insurers and HMOs from charging excessive rates,” Jones said. “And they have and will continue to charge those excessive rates unless Proposition 45 is enacted.”
Jones said more than 35 states have enacted health insurance rate regulation, and California has had a successful experience overseeing car, homeowner, and property and casualty insurance since the passage of Proposition 103 in 1988. He said drivers and homeowners have saved tens of billions under the changes.
Given the market power of insurers, he argues the state exchange will never have the clout to negotiate better rates. Of the 11 plans on the exchange, four offer insurance statewide and make up more than 90 percent of its individual market. However, even they are not each offering insurance everywhere in California.
“We’ve given them a legal monopoly,” Jones said. “Now, by law, everyone has to buy their product.”
Exchange officials say they negotiate aggressively and note that Covered California has the ability to bar insurers from the exchange. Jones said it isn’t likely to exercise that power because its chief mission is to insure as many people as possible. Last year, he unsuccessfully urged officials to bar Anthem Blue Cross from the exchange for small businesses for excessive hikes.
“They did not negotiate lower rates last year,” Jones said. Regulators “were able to get some reduction of the rates just by using the public bully pulpit as we’ve been doing for the last couple of years. But certainly we did not get the full measure of reductions that we could have gotten if we had true rate regulation.”
The proposal supported by Jones and sponsored by Santa Monica-based Consumer Watchdog would affect about 6 million people – mostly individuals and families who purchase health insurance directly from insurers and those with job-based coverage provided by companies with no more than 50 employees. The measure includes policies offered through the state exchange, covering as many as 1.4 million people so far.
Under the rate-regulation initiative, insurers or plans would begin the process by filing an application for a rate or benefit change with the California Department of Insurance. If the rate increase exceeded 7 percent, organizations and individuals seeking to intervene could request and would be entitled to a public hearing; though objections to a rate increase could be submitted to the commissioner for any rate filing. Denial of a hearing request would be subject to judicial review.
If no hearing were held, and the commissioner took no action within 60 days, the rate would be automatically approved. The commissioner could approve an increase, deny an increase or order a rate that it deemed not excessive.
Dooley said she worries about allowing anyone to challenge rates negotiated by the exchange. She said while the “intervention” process works for other types of insurance, it could encourage critics of the controversial law to challenge rates to the detriment of the exchange.
“We have seen in the history of the Affordable Care Act that there are people who are opposed to Obamacare without regard to any of the facts, and anybody could throw a monkey wrench in this,” Dooley said. “That gives me quite a bit of pause.”
Jones countered that fewer than 1 percent of all property and casualty filings have an intervenor. He said there have been only a small handful of “full-blown” hearings with decisions going to the commissioner over the last decade. In that time there have been a total of two lawsuits, and the commissioner won both.
“Even the filing of a lawsuit does not delay the rate determined by the commissioner. The rate goes into effect,” Jones said, adding courts are required to give “great deference” to commissioner determinations under state law. “It’s just simply not the case that there are going to be lawsuits that gum up the works.”
Opponents of the measure have commissioned an analysis showing the measure would undercut new authority bestowed on the exchange and its appointed board. The study by Jon Kingsdale of Wakely Consulting Group said it would destabilize negotiations between the exchange and insurance companies.
Covered California officials have raised a similar concern. In a memo earlier this month, exchange officials said their ability to negotiate with insurers could be thwarted “to the extent insurers believe Department of Insurance would ‘second-guess’ the rate they negotiated with Covered California.”
Exchange officials also warn that health insurance is different than car or homeowner insurance because customers must obtain it during a defined open-enrollment period. Consumer Watchdog, the group also behind Proposition 103, has intervened numerous times in the rate-setting process over the years. Delays in setting rates brought on by a challenge, exchange officials say, could undermine the work of the agency.
Jones said he would have the ability to set timetables to establish tighter deadlines for the health insurance process.
While the coalition of opponents, which also includes health providers and business and labor groups, says the exchange board is best suited to handle talks with insurers, supporters of the initiative say the appointed group has issues of its own.
Jamie Court, the president of Consumer Watchdog, noted Covered California does not provide official email addresses to members of its governing board, making it difficult for the public to gain access to their communications.
Exchange officials have said separate email accounts would be burdensome to board members, who serve on a volunteer, part-time basis and hold other jobs.
Though the exchange’s marketing and consulting contracts are subject to public inspection, it is allowed to keep private certain contracts with health plans.
“The nature of a negotiation is each side holds their positions in confidence, trying to get the best deals they can get,” Dooley said.
Still, Court noted that the initiative mandates public access to all rate proceedings – ensuring customers and taxpayers get the best deal.
“Covered California is a black box when it comes to seeing how a rate is set,” Court said. “The public deserves transparency and accountability when health insurers give a bill to policyholders and taxpayers – where a significant part of the money comes from in the form of subsidies.”