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Californians Favor Tougher Rules On Health Insurance Rates, Survey Says

California voters are showing strong early support for a ballot initiative that would expand the state’s authority to regulate health insurance rates.

Nearly 7 of every 10 respondents indicated that they would vote in favor of Proposition 45, while 16 percent would vote against it, according to an independent poll released Wednesday by the Field Research Corp. in San Francisco.

Proposition 45 would give California’s insurance commissioner the power to veto health insurance rate increases.

Health insurance rates in the state are currently overseen by the Department of Managed Health Care and the California Department of Insurance. Insurance companies are required to submit proposed rate increases for review each year by state regulators, who may declare rates unreasonable but cannot block them from going into effect.

“This is the missing piece of health reform,” says Carmen Balber, executive director of Consumer Watchdog in Santa Monica, the advocacy group that sponsored the initiative. “If every Californian is required to purchase health insurance and no one is overseeing what insurance companies can charge, the insurance industry will have a free pass to raise prices at will.”

Insurance Commissioner Dave Jones, too, strongly supports the proposition.

Since 2011, insurers have proceeded at least 14 times with rate hikes  deemed unreasonable by California regulators, according to the California Public Interest Research Group, a consumer advocacy group in Sacramento. Consumer Watchdog says that those rate increases have cost consumers more than $250 million.

Not everyone agrees that Proposition 45 will cut health insurance costs, however. Critics say that the initiative would do nothing to reduce underlying health care costs, but could add a costly bureaucracy to the state’s health insurance marketplace. Some also worry that the proposition could expose insurers to legal challenges on rate increases.

“It’s going to drive the costs up dramatically,” says Neil Crosby, a spokesperson for the California Association of Health Underwriters, a Sacramento-based group that represents the private health insurance industry. The campaign against Proposition 45 has received major financial backing from insurance providers such as the Kaiser Foundation Health Plan and Blue Shield of California. (Kaiser Health News is not affiliated with Kaiser Permanente or the Kaiser Foundation Health Plan.)

Peter Lee, executive director of Covered California, the state’s health care exchange, told legislators in July that the proposition could undermine the exchange’s ability to negotiate rates directly with health plans. For now, the exchange wields the bargaining power of 1.4 million people having signed up for insurance through Covered California since last fall.

An additional layer of rate review and any potential disputes with the insurance commissioner could keep some plans from being available in time for open enrollment, Lee said, and might even cause some health plans to withdraw from certain markets.

Insurance laws vary widely from state to state, but more than half of states already require some health insurance rate increases to be approved by the government before they can be implemented, according to data from the National Association of Insurance Commissioners.

The Affordable Care Act further expanded insurance rate oversight by requiring, for coverage beginning in 2011, that individual health plans spend at least 80 percent of premium costs on medical expenses. Many states, including California, have also received federal grants through the Affordable Care Act to hire actuaries to help government agencies review insurance rates more thoroughly.

Some states that require prior approval of rates have had to plan ahead to meet open enrollment timelines under the health law, says Sabrina Corlette, a senior research fellow at the Georgetown University Health Policy Institute in Washington, D.C. But in general, she says the extra reviews have not posed a problem. “We have not heard that plans just weren’t ready to be sold when open enrollment came around,” says Corlette.

The Field Poll was among the very first to survey state residents on Proposition 45 and a strong blitz by the insurance companies during the fall campaign season could affect public opinion. Insurers have donated millions of dollars to a campaign to defeat the measure.

Nonetheless, some observers say the proposition may not make a big difference in the short term.

Current market forces and the added restrictions from the health law seem to be helping to keep rate increases low in California, says Dylan Roby, a health policy professor at the University of California, Los Angeles. At the end of July, Covered California announced negotiated rate increases for 2015, averaging a modest 4.2 percent across the state.

The additional oversight could become more relevant in the future, says Roby, if health care spending begins to increase dramatically.

At the same time, Roby warns that without proper foresight, the proposition could leave certain markets vulnerable to coverage disruptions. For example, he said, in areas that are costlier to insure, and especially where competition among insurers is lower, Covered California may be forced to accept higher rate increases to keep an insurer’s plan in that jurisdiction. But if the insurance commissioner were to reject those negotiated rates, the health plan  could decide to pull out of that area altogether.

Close communication between all parties early on in rate negotiations will be key to maintaining statewide access to health insurance, if Proposition 45 passes in November, says Roby.

“Balancing the needs of the insurance commissioner and Covered California could be tricky,” he says.

The Field Poll, which looked at a variety of health issues including Medicaid and the Covered California exchange,  was conducted through telephone interviews of more than 1,500 state residents from June 26 through July 19. It has a margin of error of plus or minus 2.6 percentage points.

Blue Shield of California Foundation helps support KHN coverage of California.

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