No on Proposition 45

As you know, this blog has been—and remains—on hiatus. I’m playing around with reviving it down the road, but before I could even think that idea through, a California issue has arisen that compels me to write something now. That issue is Proposition 45. There’s a long and storied history in California of great sounding initiatives that harbor devastating impacts. Proposition 45 is one of those and that’s why it needs to be defeated on November 4th.

Proposition 45 is Unnecessary

Proposition 45 supporters claim it will lower costs by simply requiring the California Department of Insurance Commissioner to approve rate and benefit changes to individual and small group medical plans before they take effect. (Large group coverage is exempt and untouched by Proposition 45). Whether this would actually lower rates or not is an open issue. After all, insurance rates are driven by a host of issues—the cost of medical care, new technologies and drugs, an aging population and changing demographics, increasing rates of chronic conditions—none of which are addressed by Proposition 45.

Regardless of its intent, Proposition 45 is late to the lower-premiums party. The Patient Protection and Affordable Care Act (the “ACA”), often referred to as ObamaCare, already requires carriers to spend a specified percentage of the premium they take in on medical services and related expenses. This mechanism acts to prevent the price gouging Proposition 45 proponents claim is rampant in the industry.

That Proposition 45 is unnecessary is reason enough to vote no on the initiative. But it’s far worse.

Proposition 45 Gives too Much Power to One Politician

Proposition 45 doesn’t create a single payer system; it creates a single overseer system. By explicitly giving the Insurance Commissioner authority over rates and benefits, Proposition 45 gives this elected official implicit power over everything relating to health plans in California. This includes what treatments carriers cover—or don’t cover, what doctors and hospitals are in—or out—of a carrier’s network, what insurers spend on marketing and distribution, and virtually everything else but what colors are in the carrier’s logo. And a creative Commissioner could probably find a way to control that as well.

The ability to leverage explicit powers to expand control over other items isn’t idle conjecture. I’ve seen it done in other contexts. In fact, I did this kind of thing in another context. When I served on the Santa Monica City Council we used our authority over zoning to extract all sorts of concessions from developers. For example, while we didn’t have explicit authority to require a developer to set up a job training program in the city, leveraging our power over zoning exceptions we got it anyway.

The power given the Insurance Commissioner by Proposition 45 is unprecedented—and dangerous. For example, while the Commissioner oversees insurance companies, HMOs are regulated by the Department of Managed Health Care. Proposition 45, however, allows the Commissioner to overrule a DMHC decision concerning an HMO’s rates. Or benefits. Or network. Or anything else.

Covered California is the state agency running the medical exchange in the state setup pursuant to the ACA. In that role Covered California negotiates with participating carriers over rates and benefits. Under Proposition 45, however, the Commissioner (or, as we’ll see, virtually anyone else) can object to the deals reached by Covered California. The result, discussed below, could be catastrophic for California’s health insurance exchange.

So long as we continue to elect human beings to public office no politician should be given such unbridled power. The temptation to misuse it (even in the name of all that’s good and just) would overpower a saint. And to my knowledge, there are few politicians who have been up for sainthood.

Here’s an interesting fact: every elected California Insurance Commissioner but two have run for higher office. One of the exceptions, Chuck Quackenbush was indicted and resigned the office. The second, the incumbent Dave Jones, simply hasn’t had the time yet. Commissioner Jones will be reelected this Tuesday and is widely assumed to be eyeing a run for Governor, Senator or Attorney General at the next opportunity. The post of Insurance Commissioner is a stepping stone, not a destination.

There’s nothing wrong with political ambition. But it does mean almost every decision made by an office holder is at least partially a political one. The calculus facing an Insurance Commissioner when reviewing a carrier’s rate submission is pretty straightforward. At the next election does the Commissioner want to run ads bragging about the hundreds of millions of dollars they saved voters or does she want to give her opponent ammunition to call her a tool of the evil insurance companies? In the political world, regardless of party affiliation, this choice is as close to a no brainer as politicians are legally allowed to stand. The market isn’t always a perfect pricing mechanism, but it’s far preferable to a political one.

Proposition 45 Will Create Chaos and Confusion

Some 35 other states require state regulators to approve rate changes. None of them, however, have an “intervener” system like that contained in Proposition 45 (or gives such extensive power to a single politician). Proposition 45 enables “consumer advocates,” lawyers and others to object to carriers’ rate actions. Once their intervention is accepted by the Commissioner, these interveners can earn $675 per hour for their efforts. A similar provision in Proposition 103, which dealt with auto and home insurance, has earned the authors of that initiative millions of dollars since its passage. No wonder they included a role for interveners when they drafted Proposition 45.

The extremely lucrative intervener provisions in Proposition 45 are virtually guaranteed to result in costly and frequent objections. Which means rate and benefit changes could be delayed months. Under Proposition 103, the average rate filing subject to intervention takes 343 days … over 11 months. Given that health insurance is not the same as property & casualty coverage this is extremely troubling. Timely decision-making is even more important with medical coverage than homeowner and auto policies.

If anything remotely close to these delays were to result from Proposition 45 the result would be chaos and confusion. Here’s a nightmare to consider: the premium subsidies available individuals in Covered California’s individual exchange is based on the cost of a specific plan (the second lowest cost Silver plan for those interested). What happens if, after this linchpin-product is identified, priced and in place, an intervener objects to its rates? What would the premium subsidy be based on then? What plans would be available in the exchange?  It could, and I believe probably would, take months to decide.  And by then open enrollment in the exchange could be over.

Think of the opportunities for mischief. Want to undermine the ACA? Wait until the last-minute and then object to the plans and rates negotiated by Covered California. No wonder the Board of Covered California have expressed their dismay about the damage Proposition 45 could do to their program.

Broad Opposition to Proposition 45

And the Board of Covered California (who took no formal position in opposition to Proposition 45) are not the only ones concerned about Proposition 45. The roster of Proposition 45 opponents is broad and impressive.

Earlier this week House Minority Leader Nancy Pelosi voiced her opposition to Proposition 45.telling the editorial board of the San Francisco Chronicle, “If I wanted to kill the Affordable Care Act, I would do this.”

Minority Leader Pelosi joins the California Medical Association, the California Hospital Association, the Service Employee International Union of California, the California State Conference of the NAACP, the Small Business Majority, the California Association of Health Plans and a host of others in opposing Proposition 45. Significantly, the vast majority of newspapers in the state are opposing the initiative as well, including the Los Angeles Times, Sacramento Bee, U-T San Diego and the San Francisco Chronicle.

As are the major agent and broker organizations: CAHU, NAIFA-California, IIAB-Cal and WIAA have come together to form Agents of Action. This is a grassroots effort to generate 100,000 No votes on Proposition 45. The strategy is by harnessing the efforts of brokers throughout the state to educate and motivate their clients, colleagues, friends and family on why it’s important to defeat Proposition 45. (Full disclosure, I’ve played a leadership role in Agents of Action).

If you’re a broker in California, please check out the web site at www.AgentsOfAction.org, download the tools available to you there and get your network out to the polls on November 4th to vote No on Proposition 45. As Agents of Action emphasizes, Proposition 45 is bad for you and worse for your clients.

Of course, the important thing to do is vote. Too many have given too much for us not to live up to our responsibilities.

And, hey, when you do vote, please vote No on Proposition 45.

NAIC to Study MLR Impact on Compensation and Consumers Before Voting on Changes

Brokers holding their breath to see if their compensation will be removed from the medical loss ratio formula required by the Patient Protection and Affordable Care Act will be turning a darker shade of blue. The hoped for support from the National Association of Insurance Commissioners, which was expected to result from a meeting of the NAIC’s Professional Health Insurance Advisors Task Force this past Sunday, has been delayed at least four weeks.

While there was widespread and strong support for removing independent broker compensation from the formula carriers are used to calculate their medical loss ratio under the PPACA, the Task Force opted to ask their staff to provide additional data before making a decision.

While disappointing the delay is not really surprising. A substantial of the commissioners are new, having just been elected or appointed as a result of the November 2010 election. As Jessica Waltman at the National Association of Health Underwriters put it in a message to NAHU’s leadership, “[I]t was clear as soon as we arrived in Austin that some of the new Commissioners (and there are quite a few of them) had reservations about moving that quickly since this is their first meeting…. some of the more senior Commissioners were very sympathetic to their concerns about rushing things through. The NAIC almost never endorses legislation, so this is a huge deal for them.“

In addition, the issue is controversial. Consumer groups and some liberal Democratic Senators have voiced opposition to changing the MLR formula.

The Agent-Broker Alliance leading the charge for this change to the health care reform law met with several supportive commissioners and the decision was made to delay the vote. This would allow time for information relevant to the issue, already requested of carriers, to be received and considered. This time will also be used by the Agent-Broker Alliance to gather and submit data on how independent brokers are able to save clients money and the post-sale service brokers provide their clients.

Most observers I talk with are optimistic the NAIC will eventually endorse this change in spite of hesitancy from some liberal commissioners. In this regard, Politico Pulse is reporting that “Liberal insurance commissioners got a little feisty (well, for insurance commissioners) … pushing back against the speedy, one-month time line for” considering the broker compensation exemption proposal. Politico quotes California Insurance Commissioner Dave Jones as saying “I’d hate to see haste impede us having the information in front of us to make a relevant decision.” And Washington state’s insurance commissioner Mike Kreidler as declaring “I hope what we produce as a work product we can stand behind and that we’re more interested in accuracy than speed.”

When politicians speak of the need to “study” and “consider” an issue it means 1) they sincerely want to learn more about the topic or 2) they want to defeat the proposal without having to go on the record voting against it. While I hope I’m wrong, given the opposition to the exemption from liberal consumer groups, I’m betting on the latter motivation in this case. (Time will tell as I’m inclined to believe the data will be very supportive of moving forward with the exemption). That the NAIC went ahead with just a four week delay in spite of calls from Commissioners Jones and Kreidler to slow down is a sign that while there will be debate, there’s a better than even chance the NAIC will indeed support legislation to make changes to the medical loss ratio provisions of the PPACA.

Ultimately whether broker compensation is included in medical loss ratio calculations will be determined by Congress and President Barack Obama – which means nothing is certain. While I believe taking this action furthers the intent and purpose of the health care reform bill, the proposal will not enjoy smooth and speedy sailing. The bipartisan legislation introduced by Representatives Mike Rogers and John Barrow, HR 1206, has been referred to the House Energy and Commerce Committee, but no date for a hearing has yet been set.

That the idea is still alive, however, is both remarkable and encouraging. But it’s still too early to start breathing again quite yet.