Proposition 45 to Determine Future of Health Insurance Rates in Calif.

In November, Californians will have the opportunity to vote on a potential major change in the process of approving health insurance rates.

Proposition 45 moves small group and individual health insurance into the regulatory realm of automobile and homeowner’s insurance while adding regulations for the latter two. If passed, Proposition 45 would require the approval of the insurance commissioner before health insurance companies can change their rates or other benefits for small-group and individual health insurance.

The proposition provides for public notice and disclosure as well as ensuing judicial review and litigation. The LAO estimates the fiscal impact to include increased administrative costs for regulation funded by fees paid by health insurance companies.

Health Insurance

Propo. 45’s largest impact will be on the 6 million Californians who have small group or individual health insurance. Currently, the state reviews proposed health insurance rates through two health-related departments to assess the reasonableness of the changes. However, the departments do no have the authority to approve insurance rates before they take effect.

In 1988, Californians passed Proposition 103 to slow the increase in rates for homeowner and automobile insurance. Under Prop. 103, insurance rates are required to not be “excessive, inadequate, or unfairly discriminatory,” and ultimately the commissioner of insurance both reviews and approves insurance rates.

In effect, Prop. 45 places small group and individual health insurance under the regulations of Prop. 103. The appropriate state departments would continue to perform reviews, but now the commissioner would have the sole authority to approve rates.

Auto and Homeowner’s Insurance

Prop 45 also prohibits the use of an individual’s credit history or absence of prior insurance coverage for determining rates or eligibility for health, automobile, and homeowner’s insurance. Under the Affordable Care Act, these stipulations are already in effect for health insurance.

Prop. 45 would bring automobile and homeowner’s insurance under the same scope of consumer protection — blocking auto/homeowner’s insurance companies from using an individual’s credit history or absence of prior coverage in determining rates.

Support for Prop. 45

Consumer Watchdog is one of the main sponsors of Prop. 45. It stands to gain significant funds in “intervenor fees” for trial lawyers.

According to the California Department of Insurance, Consumer Watchdog is one of the most commonly listed “intervenors” who gain compensation for its services. Commissioner Dave Jones (D), who would gain the authority to approve rates, also publicly supports Prop 45. on his Facebook page.

Preventing Californians from being overcharged for health insurance is a top priority for supporters of Prop. 45. Thirty-six other states already have the authority to control insurance rates, so proponents of Prop. 45 want California to join the majority.

Supporters also promote the transparency and public disclosure of rates before premiums are able to increase as laid out in Prop. 45.

Opposition to Prop. 45

The opposition is headed by Californians Against Higher Health Care Costs, according to Ballotpedia. Californians Against Higher Health Care Costs is a lobbying group funded in parts by millions from insurance giants like Blue Shield and Kaiser, according to California’s campaign finance records.

Opponents take issue with granting one person, the insurance commissioner, the ultimate authority to approve rates as well as adding red tape to an already over regulated system. Furthermore, opponents criticize the commissioner’s lawyers for authoring a proposition resulting in increased power for Jones.

The proposition was written before the passage of the Affordable Care Act and critics worry Prop. 45 will reduce Covered California’s ability to negotiate with health insurance companies, especially since Covered California already has the authority to approve which health insurance products they sell.

Furthermore, critics point to the potential costs for taxpayers stemming from delay, litigation, and uncertainty over how retroactive decisions will be funded.

So what does this mean for voters? Californians have the opportunity to vote on how health insurance rates will be decided: Either through the current status quo of review without the authority to approve, or to give the sole authority of approving rates to one person — the insurance commissioner. It remains to be seen how much leverage Covered California will be able to exercise in negotiating rates with insurance companies.

Either way, Californians are likely to feel an impact — especially those who have small group or individual coverage.

Photo Credit: Katherine Welles / Shutterstock.com