After his second year as California Insurance Commissioner, Dave Jones sat down with California Healthline to talk about health insurance rate regulation, successes of the Department of Insurance over the past couple years and the department's role in the implementation of the Affordable Care Act.
Jones, a Democrat from Sacramento, spent eight years in the Assembly serving on the Assembly Budget Subcommittee on Health and Human Services and chairing the Assembly Committee on Health.
While in the Assembly, Jones authored legislation to regulate health insurance rate increases in California. The most recent version of that legislation -- AB 52, authored by Assembly member Mike Feuer (D-Los Angeles) and supported by Jones -- failed to pass the Legislature in 2011. It still is officially in committee and could be revived this legislative session.
Rate regulation is also proposed in a California ballot initiative on the November 2014 ballot. The proposition would give the insurance commissioner the authority to turn down health insurance rate hike requests the Department of Insurance deems excessive.
: Your rate regulation legislation was one of the most hotly debated bills before the Legislature in the past few years. Will AB 52 be taken up again this year?
Dave Jones: I don't think we know. Probably. I've been working on this now for six or seven years -- bills which passed in the Assembly only to stall out in the Senate due to the overwhelming influence of health insurance lobbying.
So I think the best way to accomplish this is by going to the voters. This past year we've been working with a consumer coalition to go out and collect 100,000 signatures, which resulted in qualifying for a ballot measure on the 2014 ballot. That will give the voters the opportunity to decide whether or not the insurance commissioner should have the authority to reject excessive health insurance rate increases.
: I was surprised it was bumped from the 2012 ballot into 2014.
Jones: It's disappointing. When you turn in your signatures at the deadline, they do what's called the short count, where they do a random sample. They have a higher threshold for that sample, you have to have 110% of the signatures you'll need. They determined we had 109%. But then they did the long count and they determined we had not only enough signatures to make the ballot, but we met the higher threshold, as well. But by that time, it was too late to make the early ballot printing.
Fortunately, the way we wrote the initiative, it allows rates to be [regulated] going back two years prior, so any rate that's excessive in 2012 or 2013 will also be reachable. That's an important feature. It will allow the commissioner to order rebates to consumers and businesses that have been forced to pay excessive rates.
: In a way, 2014 may be better for your initiative because one of the concerns about AB 52 was that it would somehow interfere with the work of the exchange and health reform.
Jones: I don't think the opposition in the Legislature had anything to say on that issue. It doesn't interfere with the ACA. The real opposition, and the real reason it didn't pass the Senate, was because of the opposition of the HMOs. They don't want anyone looking over their shoulders and don't want anyone rejecting excessive rates.
In fact, I think [rate regulation] is absolutely essential to the success of the Affordable Care Act. The authority to reject excessive rate hikes is the single largest loophole or omission in the ACA. Without it, I'm afraid we're running a great risk of having an unaffordable care act.
: There's one general perception that regulating rates is somehow a moot point because the exchange will offer more reasonable rates, which means we won't need regulation of rate hikes. But you don't see those lower rates happening without that regulatory power?
Jones: I'm a big believer in math, and I avoid magical thinking. I'm very concerned there's a lot of magical thinking going on. Look at the evidence. Look at what happened in Massachusetts. It's very clear the Affordable Care Act, in and of itself, is not going to magically reduce rates.
The best example is CalPERS, which is the largest of the large groups. Remember, the theory of the exchange is that it's going to function like a large group and negotiate for better prices. But even CalPERS had to acquiesce and accept a 9.6% rate increase last year. That's additional evidence, I think, that just buying power alone isn't going to be sufficient.
: But the state's exchange hopes to have a lot more buying power than CalPERS.
Jones: What counteracts that buying power is that, under the ACA, we have granted the HMOs and health insurers a legal monopoly. Now, by law, you have to buy their product, or suffer a penalty. So if you thought their ability to jack rates up previously was based on monopoly power, just wait till, by law, you have to buy their product.
: So you're saying the Affordable Care Act could actually make insurance rates rise?
Jones: While there are a lot of benefits to the exchange, a lot of benefits to the Affordable Care Act, there is a big, glaring loophole and omission -- and that's the absence of the authority to reject excessive rate hikes.
: What do you plan to do about that between now and the 2014 election?
Jones: I think we build the coalition to get the initiative over the goal line. We'll be facing huge opposition. If you thought health insurers were opposed to the bills in the Legislature, just watch how much money they spend against the initiative.
: I meant what does your department plan to do -- what does the Department of Insurance plan to do about limiting large health insurance rate hikes over the next couple of years?
Jones: Well, I think it's business as usual for the HMOs and health insurers. California businesses have been afflicted with double-digit rate hikes each and every year over the last 10 years. I think you're going to see that this year. I think you're going to see that next year, and I think you're going to see that going forward.
: And what can the DOI do about it?
Jones: We're authorized to look at those rate hikes; we do look at them, we look at them very carefully. We call out math errors. We call out over-projections in regard to utilization and medical cost. We call out high administrative cost. We call out excessive returns on equity. Some of these companies are making 18% to 21% return on equity, at the height of the worst recession since the Great Depression.
We're able to call out all of those things. But at the end of the day, the companies are not bound by our findings.
: But you have had some success in convincing health insurers to modify rate increases.
Jones: We have had some success, some modest success, in getting health insurers to reduce the rate of increase, in some cases to get insurers to withdraw a particular rate filing in a particular quarter or a particular year. But the overall trend continues to go up.
There is certainly some value in rate review; we certainly use it. But at the end of the day, it's not binding. My sole remedy is to post a Scarlet Letter on my website that a rate is unreasonable.
: Is there any aspect of DOI work in health care where you do have that kind of authority?
Jones: I have the authority to regulate medical malpractice insurance. And I have done that. When I first came into office, I discovered the percentage of claims being paid out by medical malpractice insurers was a fraction of the money they were pulling in.
We ordered the six largest med-mal carriers to file rate changes. So there, we did order rate reductions of 20% to 30%, providing over $46 million to physicians and dentists and other providers.
: For 2013, what's on the agenda for the Department of Insurance?
Jones: The Affordable Care Act, working closely with the exchange, with the Brown administration and the Obama administration on implementation leading to 2014. For us, that means we need to staff up to be in a position to receive all of the policy form filings and review them for compliance … to make sure insurers can sell to the exchange.
Number two, we need to close the stop-loss insurance loophole.
Number three, I think it's critically important that we take advantage of the opportunity to expand Medi-Cal. That's a huge win for the state, we receive some $37 billion in federal funding that pays for virtually 100% of it for the first three years. And in the out years, federal participation is at 90%. So that's critically important.
: When you were in the Assembly, you were always big on health care issues. When you look at the landscape over the next year or two, outside of the ACA, what do you see that needs to change? If you were back in the Assembly, what would you push for?
Jones: We have some other challenges on our hands. One of the biggest is the shortage of primary care physicians.
The ACA addressed some of that with the increasing funding for medical schools to train more primary care physicians, for loan repayments, and also increasing Medicaid reimbursement rates for primary care physicians. There are some things the ACA is doing to increase the number and participation of primary care physicians, but we're still going to have a shortage here in California. That has to be something we collectively look at addressing. We have to broaden the delivery platform, for one thing. And we need to look at the distribution of primary care providers.