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By Tom Cushing

Prop 45 and Health Insurance Rates

Uploaded: Oct 9, 2014

It's ? E-lection time again ? you will deceive me,
I can hear those nasty code words in your ads.
I can tell by the 'on' you 'shine' me, darlin',
That we vote real soon, and so it's lyin' time.

If you don't like pesky truth-in-advertising laws, this is your month. As much as I'm armed with my DVR and fast-forward remote controller, Prop 45 TV ads have overwhelmed my defenses. Truth and I are both taking a beating.

Proposition and candidate ads are in a different class from normal sales pitches. They are 'political speech.' As such, they are nearly immune from any attempts by government to regulate their content. We call that kind of interference 'censorship,' and there are excellent reasons that state must strictly leave hands-off. Ads that try to sell you some bauble, by contrast, are seen in the law as 'commercial speech' and much less central to the interests of the society. Thus, the First Amendment allows some government role in ensuring a level of truthiness in the impressions they generate.

Let's look at what Prop 45 actually says -- from the non-partisan legislative analyst, in the Official Voter Information Guide, and then examine the Pros, Cons and Ho-hos of it.


Requires Insurance Commissioner's approval before health insurer can change its rates or anything else affecting the charges associated with health insurance. Provides for public notice, disclosure, and hearing, and subsequent judicial review. Exempts employer large group health plans. Fiscal Impact: Increased state administrative costs to regulate health insurance, likely not exceeding the low millions of dollars annually in most years, funded from fees paid by health insurance companies."

The Guide further indicates that the content of most health insurance plans currently must meet state requirements set by either the Department of Managed Health Care or the California Department of Insurance (CDI). The rates charged by those insurers, however, are not regulated. Rather, the regulators can only 'review' coverage, co-payments and deductibles, and administrative costs -- but then they are limited to suggesting whether they consider those rates to be 'reasonable' or not.

By contrast, rates for auto and homeowner's insurance Are now regulated by the CDI. Per 1988 Prop 103, those rates must not be 'excessive, inadequate or unfairly discriminatory.' Prop 45 extends that final authority over proposed rates to some health insurance policies, subject to judicial appeal from the Insurance Commissioner's decision. CDI rate review costs ("likely not exceeding the low millions annually?") are recovered from fees charged to the insurance companies, and may end up being passed along to policy holders.

It is important to understand that this Proposition applies only to Individual and small-group rates, which together comprise only 16% of the market (about 6 million souls). 37% of Californians are beneficiaries of government plans (Medicare, Medicaid), and 40% of us are covered by large group employer plans (7% remain uncovered, at all). Large plans are exempted, presumably because those folks can fend for themselves$.

Here are the arguments, pro and con, also included in the Guide, but sourced from advocates.


o Health rates in CA up 185% since 2002, 5x the general inflation rate, and including $250M the CDI viewed as 'unreasonable.'

o Since Prop 103 in 1988, CA is only state where auto insurance rates have actually gone down, saving Californians an aggregate $102B.

o Federal mandate that all people get health insurance makes it imperative that small consumers be protected against price gouging.

o 36 of the 50 states already regulate these health rates (per the SJ Mercury News).


o There's a new independent commission working on this very thing.

o Prop 45 is a special interests power grab that puts too much power in the hands of one politician

o $10s of millions in new, duplicative bureaucratic costs, every year

o costly new frivolous lawsuits hidden in fine print

o exempts big corporations, as it burdens small business with costly costs.

SPENDING by Top 10 Contributors :

Pro-45: $3,183,650 ('Consumer Watchdog Campaign,' CA Nurses Ass'n., a VC, a few prominent law firms

Opp-45: $37,929,670 (all but $10,000 from health insurance companies)


I have to go with the Pro-45s on the arguments, above. I do not see why health insurance should be treated differently from other forms of insurance, especially given its much larger bite of everybody's monthly fisc. The fact that most other states do it this way suggests that there's some logic behind the approach.

Of course, regulation does cost money, but low millions is not much in the context of a $100 Billion state budget, and the new review process is added into familiar, existing agency business. Some part of those costs will be passed through to rate payers, but that kind of begs a related question: how much of my health care premium went into that $38 million the insurers have invested in defeating this thing?

Moreover, $38 million? More than 10x what the opposition is spending? What's that smell?


This test measures the portion of the arguments that you'd avoid if you saw it on the sidewalk. The Pro-45s at least lead with specifics that can be audited, and even if we halve them for partisan bloat they are still significant.

By contrast, the CONs do not dispute those specifics, their "one politician" is the Insurance Commissioner whose job, after all, is to regulate insurance. They also fail to identify this shiny "new independent health-care commission" in any way that would allow readers to look it up.

They toss-out vague-but-loaded terms like "sweeping control," "costly duplicative bureaucracy," "frivolous lawsuits" and "exempts big corporations." And they begin their argument with the disingenuous phrase: "We all want to improve our health-care system, but ?" Really? Who's this 'we,' kimo sabe? And what other improvements, pray tell, are you spending $38 million to effect? That feeling of manipulation you might have felt viewing their commercials is just you ? resisting manipulation.

Sometimes political speech takes its license too far, and is just too transparently deceptive to work its magic. I'd advise a 'yes' vote on Prop 45.