Prop. 45 Is Dividing Constituencies

"It's going to end up hurting Californians," Covered California board member Susan Kennedy said at a board meeting last month.  

"It will damage healthcare reform, perhaps permanently, perhaps fatally, in California.”

Was Kennedy talking about the Halbig lawsuit, which threatens the legality of the Affordable Care Act’s insurance exchange subsidies?

Was she riffing on the possibility of another health insurer dropping out of California's marketplace?

No. Kennedy was dispensing her opinion on Proposition 45, a ballot measure that would give the state's insurance commissioner the power to veto premium hikes ... and has sparked California's most contentious healthcare debate.

Prop. 45 was put forward by the Consumer Watchdog advocacy group and has since been supported by Insurance Commissioner Dave Jones, a Democrat.

The measure would allow the insurance commissioner to reject health insurers' rate increases if they're deemed unjustified.

Thirty-five states have adopted similar measures to Prop. 45.

By the numbers, it seems like Californians have already made their choice: A Field poll released last month found that nearly 70% of registered voters said they would vote for it.

But a new group -- Californians Against Higher Health Care Costs -- is trying to chip away at that support. It argues to Republican voters that Prop. 45 empowers Jones as an unaccountable healthcare czar; and to Democrats, that Prop. 45 would threaten the successful implementation of the Affordable Care Act.

But as Wendell Potter reported for the Center for Public Integrity, the group isn't simply assorted do-gooders pushing a grassroots campaign. It's backed by more than $37 million in donations from the California Association of Health Plans and the state's leading insurers

The fight has also pitted the Department of Insurance and its current commissioner, Dave Jones, against Covered California.

Officials with the health insurance exchange suggested that allowing the Department of Insurance to veto rate requests would disrupt its ability to create an insurance marketplace by adding another layer of bureaucracy and introducing unpredictability.

For instance, Covered California could negotiate with a certain plan to serve a community -- but under Prop. 45, the insurance commissioner could change the terms of that arrangement at the last minute.

"Even under a best-case scenario, [Prop. 45] adds delay, confusion, litigation, risk of retroactive rejection and cost," Kennedy said at last month's Covered California board meeting.

Director Peter Lee has also stressed that Covered California's "active purchaser" model has helped tamp down premium hikes, mitigating the need for rate review.

Defenders of the measure suggest that there's a track record of California's insurers raising rates despite objections.

In the past four years, insurers have proceeded with at least 14 rate hikes that were deemed unreasonable by California regulators, according to the California Public Interest Research Group.

Jones said that Covered California's current structure allows insurers too much negotiating leverage. "When your bargaining partner controls 93% of the market, you don't have the bargaining power to get better rates," Jones told California Healthline.

Jones added that other states with comparable approaches to an active-purchaser model have successfully introduced rate review. And he suggested that it was the looming threat of Prop. 45 that helped scare health insurers to keep their rates low ahead of the next enrollment period.

"There's no question that health insurers have pushed the pause button in their double-digit rate hikes," Jones said. "They don't want a repetition of what happened in 2009," alluding to Anthem Blue Cross of California's high-profile and controversial premium increases -- a decision that was a pivotal moment in the national campaign to enact the ACA.

"I'm a big believer in California exceptionalism," Jones said. "But it is simply not the case that we are exceptionally not able to implement rate regulation in a way that 35 other states can."

Dan Diamond is a managing editor with the Advisory Board Co. A version of this article originally appeared on California HealthLine.