Real Answers to Questions about the Flawed Health Insurance Rate Regulation Initiative

A special interest group with funding ties to trial lawyers has filed a ballot initiative for the November 2012 statewide election that would impose a flawed rate regulation scheme on health insurance in California. Californians Against Higher Health Care Costs answers the most frequently asked questions about this flawed measure, explaining the negative impacts to patient care and exposing the true intentions of the proponent.

What would the initiative do?

This special interest sponsored initiative would create an expensive and expansive government program in an ill-conceived attempt to regulate health insurance in California. It would add layers of regulation to health care on top of existing federal and state regulations and give one politician nearly total control over health care coverage and prices, ultimately leading to higher rates and less access to care for patients.

Don’t we need to do something about the cost of health care?

Yes. Physician groups, doctors, hospitals and other health care providers agree that controlling health care costs is important, but this misguided initiative is not the answer. Rate regulation won’t relieve the underlying cost pressures that drive up insurance premium prices.

Who opposes this flawed initiative?

Physician groups, doctors, hospitals, health care providers, small businesses and others are opposed to this flawed initiative because it will cause higher rates and reduce access to care.

Current opponents include the California Medical Association, California Hospital Association, California Association of Physician Groups, California Chamber of Commerce, Small Business Action Committee, California Association of Health Plans and Association of California Life and Health Insurance Companies.

What would this new bureaucracy cost consumers?

The initiative would create a new multi-million-a-year state bureaucracy—that would be controlled by a single politician—at a time when we can least afford it. The non-partisan Legislative Analyst’s Office projects increased state administrative costs would be in the tens of millions of dollars. Under this initiative, money from health insurance premiums that would otherwise go to paying for health care would be diverted to pay for bigger government and payments to special interest groups. This measure would do the opposite of what it claims: it would effectively INCREASE the cost of insurance.

Doesn’t this initiative put one politician in control of our health care?

The initiative would give one politician almost total control over our health insurance while still allowing him to collect millions in campaign contributions from special interests. It puts too much power in the hands of a single elected politician, with no checks and balances.

The initiative would deprive Californians of their ability to fashion health insurance to meet their needs because it would give the elected Insurance Commissioner power to determine rates, co-pays, deductibles and benefits in the state.

What does this initiative mean for small businesses?

This measure would also deal another blow to small businesses and their employees struggling in a difficult economy. It provides one politician the power to set rates, benefits, co-pays and other costs for millions of small business employees and could force many small businesses to lay off workers, drop coverage or even go out of business. We should protect small business and jobs, not kill them.

Who is behind this ill-conceived proposal?

The initiative is being proposed by Consumer Watchdog, a special interest group with funding ties to trial lawyers.

This initiative would create a new funding stream for Consumer Watchdog and its band of trial lawyers to pocket millions of dollars—at consumers’ expense—because they wrote the initiative to include lucrative financial rewards by merely asking for a public hearing of proposed rate increases. Consumer Watchdog has already collected over $7.5 million from a similar provision it wrote for Proposition 103. What’s more, last year, Consumer Watchdog collected 100% of all such fees paid through auto insurance regulation.

Rather than raising money for trial attorneys, a sincere approach to controlling health care costs would bring all stakeholders to the table and address the real reasons prices are going up.

Hasn’t this been tried before?

Four unsuccessful attempts have been made to enact similar legislation to create an expensive and expansive government program. Now, Consumer Watchdog, a trial lawyer funded special interest group, is making a last ditch effort to use the initiative process to open up health insurance to the same scheme that has allowed Consumer Watchdog and trial lawyers to make millions of dollars off of our auto and homeowners insurance premiums.

In 2011, doctors, hospitals, physician groups, employers and more than 100 groups opposed a similar legislative proposal (AB 52) to the initiative because it would increase the cost of health insurance and have devastating impacts on patients’ access to quality care. 

How is the proposed ballot measure different than prior legislation (AB 52)?

The new initiative is not AB 52. While there are similarities between the two, there are some key differences that are important to consider.

Consumer Watchdog’s initiative:

• Places rate regulation in the control of one elected politician – the Insurance Commissioner, who accepts special interest campaign contributions.
• Confuses regulatory oversight by allowing the Insurance Commissioner seizing power for rate regulation over a market sector historically overseen by the Governors’ Department of Managed Health Care.
• Provides the Insurance Commissioner the power to regulate rates, co-pays and deductibles, and benefits.
• Only targets individual and small group markets; excludes large group plans.
• Inserts poison pill to negate a completely unrelated auto insurance initiative.

Won’t this keep my rates from going up and protect my benefits?

The scariest thing about this new measure is that it does nothing to protect the coverage that you have today. It doesn’t guarantee reasonable co-pays, coverage levels or doctor choice.  In fact, Consumer Watchdog’s Jaime Court told Fox News in LA that health insurance in Massachusetts is expensive despite the fact that the state has a rate regulation law.

Would the initiative limit patient access and care?

Yes, the initiative would reduce patients’ access to health care. Doctors and hospitals rely on private health insurance to offset the billions they lose treating the uninsured and those with government insurance (i.e. Medi-Cal). Without addressing chronic government underpayment, this initiative would just lead to fewer available doctors, less access to them and shorter doctor visits.

In a recent letter to the proponent of the initiative, Dr. Paul R. Phinney, President-Elect of the California Medical Association, argued that the “measure is nothing more than a poorly disguised attempt to siphon health care dollars away from patient care into the hands of consumer attorneys, leaving even less money available to provide care while doing absolutely nothing to address the underlying drivers of health care costs.”

How would this impact California’s new Health Benefit Exchange program which is working to offer millions of Californians a new marketplace for health insurance?

Consumer Watchdog’s proposal would hit patients hard by undermining one of the key components of health care reform, the California Health Benefit Exchange. The Exchange will create a new competitive marketplace for health insurance by negotiating the best rates and plans for individuals and small businesses. Its ability to create this new market would be undercut by the initiative because it allows an elected politician to interfere with Health Benefit Exchange by delaying the release of new health coverage policies and changing the pricing established by the Exchange Board and Leadership.

The initiative would further complicate a new program that needs flexibility to meet the goal of offering millions of Californians a new marketplace for health insurance.

Don’t state laws already protect consumers against excessive health insurance rates?

Yes. California has already enacted laws that impose limits on health insurance premiums and require rate review.

Recently enacted state legislation (SB 1163) requires health plans to report to state regulators all premium increases for individual and small group plans. It requires health plans to have an independent actuary certify that any premium increases are justified. It also gives the Department of Managed Health Care and Department of Insurance new powers to review rate changes and allows for public comment on premium increases.

In addition, newly enacted state law (SB 51) and federal health care reform require 80 to 85 cents out of every $1 in premiums be spent on medical care. If insurers don’t meet these requirements, they will be required to pay a rebate to policyholders.  Contrary to the claims of the initiative’s proponent, insurers have one of the lowest profit margins in the health care industry, with only 3 cents out of every $1 in premiums going to health plan profits.

Health and Human Services (HHS) Secretary Kathleen Sebelius issued a report (March 2012) on the impact existing federal and state laws are having on health insurance rates that stated “six months after HHS began reviewing proposed health insurance rate increases, consumers are already seeing results” and that “states like California, New York, Oregon, and many others, have proactively lowered rate increases for their residents.”

Has rate regulation worked in other states?

No. Despite proponents claims, experience in other states clearly demonstrates that the vast regulatory structure the initiative would impose has not saved money. Five out of the 10 states with the highest premiums in the individual market impose price controls on rates.

In fact, Consumer Watchdog’s Jaime Court told Fox News in LA that health insurance in Massachusetts is expensive despite the fact that the state has a rate regulation law.

Furthermore, according to the U.S. Department of Health and Human Services, California ranks in the middle, 25th out of 50 states, this despite having a higher cost of living.

What are the real underlying cost pressures that drive up insurance premiums?

Rate regulation won’t relieve the underlying cost pressures that drive up insurance premium prices, which is why it hasn’t worked in other states. Underpayment for government insurance programs, such as Medi-Cal, and the cost of treating the uninsured significantly drive up premium costs. Additionally, Americans are living longer, leading to bigger medical bills, more insurance claims and higher costs for the management of chronic illnesses.

The proposed initiative would do nothing to stop the rising cost of care, which continues to outpace inflation and growth in our nation’s economy—adding up to more than $1 out of every $6 generated in the U.S. economy.