A new ballot measure that could give California’s insurance commissioner veto power over health insurance rate increases has brokers and advisers across the country’s most populous state fired up.

The measure, referred to as Proposition 45, is up for vote with the general public during the November election and, if passed, would give California Insurance Commissioner Dave Jones control over health insurance premium rates, benefit plans, underwriting, coinsurance and more, according to Neil Crosby, director of sales for Warner Pacific Insurance Services in Westlake Village, Calif., and vice president of public affairs for the California Association of Health Underwriters.

“It’s like telling a gas station owner they can only charge $4.00 for a gallon of gas, regardless of what it costs for them to run their business, because one person feels this should be the price, this is what it is,” he says. “It doesn't account for what the gas station owner needs to keep [the place] up and running or if the gas actually costs more.” In other words, Crosby says, health insurance agents and health care providers will have less to work with to provide health coverage and care to consumers.

“It’s not sustainable,” says Michael Lujan, chief sales officer of Limelight and former marketing official with the state-run health insurance exchange Covered California. “On the surface it looks good” to consumers, but it could cause a lot of problems. And Mark Gaunya, EBA Advisory Board member and president at Borislow Insurance in Methuen, Mass., says he’s heard New York and New Jersey could be next to approach this sort of initiative. Crosby says the National Association of Health Underwriters is “looking at it nationally” as a possible trend and concern.

A squeeze to the system

One of Crosby's biggest concerns about the measure is that if it is approved, and the insurance commissioner does hold rates at lower-than-proposed levels, “it squeezes the insurers, the providers and it could also squeeze the distribution service system.” A significant opposition, beyond just agents and brokers, has consequently formed to defeat the bill because it could affect many industries, and ultimately consumers.

A July 2 Los Angeles Times article reports state health insurers have spent more than $25 million to counter Proposition 45. The Times says the group that’s formed to defeat the measure is called Californians Against Higher Healthcare Costs.

The measure, Crosby says, proposes tens of millions of dollars to enforce the regulations through the Department of Insurance. And who will pay for that? The end user, he says. “It’s a catch-22,” he adds. “It will drive the rates up for enforcement and then [the commissioner] will say no you can’t do that; it just doesn't make sense the way the law was written.”


Crosby also notes that this could be a public relations stunt for Jones, who has held the office since 2011. In California, the insurance commissioner is an elected official and is a position commonly used for developing a statewide profile. In fact, 10 out of the last 11 insurance commissioners have gone on to run for governor, according to Crosby.

Scott Harrington, insurance expert and professor at the Wharton School at the University of Pennsylvania, confirms that there’s history of politicizing insurance policy in California, and says this particular issue is not good for a ballot initiative.

“I would be a little concerned in California, I think there’s been a tendency for grandstanding,” he says. “It can be problematic to have an insurance commissioner who thinks they can get political support by pushing aggressive regulatory policies … because the repercussions can be less visible.” Harrington says that those for the measure have a simple message — this could decrease your personal health costs — which could lead to “uninformed voting.”

On top of all this, Crosby points out that the medical loss ratio changes in the Affordable Care Act already “put some protections in place” for rates. With the ACA, 80 cents of every dollar of premiums have to go to health care for small businesses, and that bumps up to 85 cents for larger employers.

Harrington, who recently authored a paper called "Deciphering the Data: Health Insurance Rates and Rate Review," writes that California is one of 15 states that has no prior approval of rates given to the insurance commissioner at this time. That means 36 states, including the District of Columbia, do give the commissioner some authority over rates.

However, “it depends on the philosophy of the insurance commissioner, but in many states [that have prior approval], they recognize it would be counterproductive to hold something at a price that would make them popular.”

California’s initiative gives more sweeping power than the regulations in place elsewhere.

“It gives one human-being a lot of power,” Crosby says.

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