The ongoing debate of insurance rate review will finally be in the hands of the voters come November 4 when the Insurance Rate Public Justification and Accountability Act, or Proposition 45, will be on the ballot. If approved, the measure would require health insurance companies to justify rate increases, under threat of perjury, and obtain prior-approval by the California Insurance Commissioner. This would only affect health plans in the independent and small group plan, which covers about 16% of the state population, approximately 6 million Californians. Employer-based plans would not be subject to the new rules.
To provide some context of the new rules, in 2011 a health insurance rate review system was created to regulate increases in health insurance rates. Currently, there are two authoritative entities that regulate health insurance including the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI). Health insurance companies must submit proposed information on rate increases with either DMHC or CDI. These entities review rate increases and declare whether they are reasonable or not. However, the Insurance Commissioner, Dave Jones, has no authority to reject or approve any planned rate increases. Health insurance plans can voluntarily change rates increases if they are deemed unreasonable, however, the plans can also disregard an “unreasonable” ruling and proceed with planned rate increases.
On July 17, the report from the Legislative Analyst’s Office (LAO) analyzed some potential outcomes of the approval of the proposition. First, if approved, the proposition would require future and current rates to be approved. This means that rates filed after November 6, 2012 must also be approved. It is possible that insurance companies would be required to issue rebates to their consumers if rates are retroactively rejected. It is unclear if rebates would be issued for health plans that are no longer active. The California Public Interest Research Group (CALPIRG) reported 14 rate increases since 2011 that have been deemed unreasonable. Consumer Watchdog calculated this has cost Californians approximately $251 million. Therefore, it is possible Californians could receive rebates if they were enrolled in one of the “unreasonable” rate plans as labeled by CDI.
Additionally, the LAO discussed the future role of DMHC if the proposition were to pass. It is speculated that the responsibilities of DMHC could decrease, as the Insurance Commissioner’s authority grows. If the DMHC branch were to downsize, annual savings in the amount of several hundred thousand dollars would result due to reduction in administration costs. However, the LAO also suggested there could be additional regulatory workload, but no specifics were provided.
While rate regulation is an important aspect of affordable health care and cost containment, it is not without controversy. The ballot measure, sponsored by Consumer Watchdog, has the backing of the California Democratic Party, the Insurance Commissioner, other consumer groups (Consumer Federation of CA, Consumer Attorneys of CA), several unions (CA Nurses Association, United Teachers Los Angeles, California Federation of Teachers), and actor Dennis Quaid. Opponents of the measure include the CA Chamber of Commerce, physician/provider/hospital groups (CA Medical Association, CA Hospital Association, etc), CA Association of Health Plans, and some unions (United Contractors, International Brotherhood of Boilermakers, etc).
The proposition will be on this November’s ballot, and requires a simple majority to pass.
Author: Marina Acosta