SACRAMENTO—Supporters of the Affordable Care Act, a.k.a. Obamacare, have been fending off challenges from the right—from Republicans opposed to deeper government intrusion in the health care market. But in California, the biggest threat to the program's implementation now is coming from the left.
An initiative that has qualified for the November 2014 ballot, called the "Insurance Rate Public Justification and Accountability Act," would impose the kind of price controls on health insurance that exist on California auto, property and casualty insurance. And Obamacare's champions fear that these rules would strangle the state's health care exchange, called Covered California, with profiteering, delays, and too much regulation.
Talk about ironies!
They have reason to worry. Thanks to an adversarial insurance pricing system that pays consumer groups to serve as "intervenors" who challenge rate hikes in the regulatory and legal process, it can take a year or more for companies to get government approval to adjust rates. Such long delays could hobble a rapidly changing and complex health insurance market.
The initiative is authored by Santa Monica-based Consumer Watchdog, the same group whose founder authored Proposition 103. That's the 1988 measure that forced insurance companies to roll back their rates by 20 percent and then gave the insurance commissioner the power to reject rate increases and push for lower rates. It was backed by Ralph Nader.
Opponents of the new measure—a coalition of health insurance and health care providers—released a report by an Obama administration health adviser on Thursday warning, "The ability of outside groups under the initiative to intervene and delay the approval of Covered California plans—would severely disrupt Covered California's ability to manage the newly reformed marketplace."
In its typically aggressive fashion, Consumer Watchdog blasted the report as the work of "price-gouging insurance companies." The group is at the center of this debate not only because its role with the two measures, but because it gains financially from this rate-control process.
"Intervenors" can get paid hundreds of dollars an hour (paid by insurance companies) in fees to monitor the rate process, supposedly on behalf of the public. No surprise, Consumer Watchdog is the most proficient intervenor and has received millions of dollars in its challenges under Proposition 103. The intervenor process is "mainly for the self-interest of a particular group that's running the initiative…," Senate Health Committee Chairman Sen. Ed Hernandez, D-West Covina, told me on Thursday.
Consumer Watchdog President Jamie Court, said in an interview that the group's fees are modest considering the billions of dollars in savings its efforts have secured. In his view, there's no debating the obvious point—after his group intervened, insurance companies lowered prices.
But policy rates are not such a simple matter. For instance, insurance companies know that any rate increase they propose will be met by consumer-group demands for lower rates, so they come in really high as a negotiating ploy. While California auto rates have fallen since Proposition 103, insurance companies say the main reason for the reduction is a 1988 California Supreme Court ruling that limited lawsuits against insurers.
Some say that Proposition 103 actually has boosted the profits of insurers by maintaining artificially high rates in an increasingly competitive market. No insurer wants to face that legalistic rate-changing process. So when prices are falling, insurers sit on their higher, regulated rates—rather than lowering them to lure new business.
Our economic system is based on the idea that competition pushes companies to innovate and usually leads to higher quality and lower prices as they compete for customers. Insurance regulation is traditionally designed to ensure that companies honor their policies, not to control prices.
Instead, we have an insurance system where companies must enter a Kafkaesque process to set rates, and in which outside groups reap millions of dollars. Consumer Watchdog says this process should expand because health insurance is a necessity. But food, transportation and housing are necessities, too. Can you imagine if prices on those items were set that way? No wonder a broad political coalition is growing to oppose the ballot measure.