Proposition 45, a ballot initiative that would give the states Insurance Commissioner, Dave Jones, power to determine insurance rates for millions of Californians, looked like a winner last summer. A Field poll conducted in June and July showed 69 percent in favor versus only 16 percent opposed. However, in August and September, the numbers dropped to 41 percent to 26 percent in the Field poll, and 48 percent to 38 percent according to the Public Policy Institute of California.
As more voters tune in, they realize that giving more power to politicians to determine health-insurance premiums is a losing proposition. The Insurance Commissioner points out that individual plans had rate increases of 22 percent to 88 percent in 2014. That suggests that consumers would have benefitted from the Insurance Commissioner as price-fixer. But 2014 was a uniquely expensive year: Obamacare imposed a number of costly mandates on insurers that drove up premiums, such as not letting insurers charge higher premiums to people who have waited until they fall ill to buy insurance and benefits for which people were not willing to pay in the previous, voluntary, individual market. If Mr. Jones had tried to roll the increases back to single digits, no insurers would have participated in the states Obamacare exchange, Covered California.
What Prop. 45 ignores is that insurers do not create costs: They pass through costs imposed by government or negotiated by providers.
Although health plans try to keep costs down, it is increasingly difficult for them to do so. Providers have been consolidating for years, and Obamacare has accelerated the pace. Paul Keckley of Navigant Consulting recently reviewed this: The numbers of physicians practicing in groups of five or fewer physicians decreased from 66 percent in 2001 to 51 percent in 2012, while physicians in groups of 100 or more increased from 3 percent to 12 percent in the same period; while employment of physicians in medical practices owned by hospitals increased from 24 percent in 2004 to 49 percent 2011; and the numbers of hospitals in multi-hospital systems increased from 53 percent in 2003 to 60 percent in 2013.
Health plans have to negotiate with those providers in a fast-moving environment. Demanding that they also have their rates reviewed by multiple bureaucracies is a recipe for confusion and frustration in an environment already typified by massive government control.
Most importantly, giving politicians the power to approve premiums doesnt even hold down rate increases. I have examined data on premiums and premium-review laws for small-group premiums in 43 states in 2006 and 2008. Nineteen states were file and use, which means that health plans must submit premium increases to the insurance commissioner, but he has no power to reject them. Twenty states required prior approvals of rate changes by the insurance department, and four were unregulated.
There does not appear to be any connection between prior approval and a lower change in rates from 2006-08, nor the absolute value of rates in 2008. The average increase over the period was 8 percent for both file-and-use states and states requiring prior approval.
Data for the individual market is available for 29 states in 2007 and 2009. Of the 22 states that legislated prior approval of rate increases, four allowed file-and-use, and three were unregulated.
In this case, the states with prior approval had an average increase of 6 percent, versus 13 percent for the file-and-use states. However, there is no statistical power to this comparison: The highest increase in the four file-and-use states was 13 percent (in Texas) versus 29 percent in New York, the state requiring prior approval that experienced the highest increase.
Obamacare has already wreaked havoc on Californians health care, and it is going to get worse. Giving yet another politician power over our access to health insurance so that he can win a battle in a bureaucratic turf war is not what California needs.