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How the Health Insurance Industry Defeated California’s Prop 45

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The power of propaganda fueled by corporate cash triumphed over common sense once again in a California ballot measure on Tuesday. Two years after voters narrowly rejected a GMO labeling measure following a late-game, $46 million corporate advertising blitz led by Monsanto, the health insurance industry spent an estimated $57 million to successfully swamp Proposition 45, that would have given the elected state insurance commissioner the power to veto (some) excessive health insurance rate increases, a power that regulators exercise in 35 other states.

Here’s one part of the nonsense: one of the industry’s principal arguments was that the added regulation would increase the cost of health insurance. I’m not making this up! It takes some serious cojones to make that argument when you’re running a health care system that costs twice as much as that of any other industrialized nation and delivers inferior health outcomes, while there is nothing to stop you from raising the rates as high as you want without having to explain yourself to anyone. And you make your point by spending $57 million worth of premium payments that otherwise could have been used to provide health care. I’m willing to wager that the cost of insurance commissioner oversight would have been far less than $57 million.

But it worked. Prop 45 went down in flames 60% to 40%.

More nonsense: the industry ran scare ads that asked voters whether they wanted their health care decisions made by a single power-hungry government bureaucrat (the insurance commissioner). They just forgot to remind voters that now those decisions are made by a small circle of anonymous and very highly compensated insurance industry executives who are accountable to no one, unlike an elected insurance commissioner.

The rest of the nonsense: the industry argued that implementation of the rate review process might interfere with the ongoing rollout of the Affordable Care Act (ACA), otherwise known as Obamacare.

The subtext of this argument is the tried and true, right-wing talking point that government can’t do anything right. It always gets thrown into the mix because after decades of propaganda (endless repetition of this point), even supposedly liberal voters are susceptible to this canard.

The specific deceit behind this argument is that Obamacare is really working, so we can’t take the risk of messing with it. The cadaver of the politician formerly known as Nancy Pelosi was even wheeled before the public to plead for Obamacare.

“If I wanted to kill the Affordable Care Act, I would do this,” Pelosi told the editorial board of the San Francisco Chronicle (who were so impressed they urged voters to reject the measure, as did the LA Times).

“ACA is who I am,” Pelose reportedly said. “It’s why I stay in Congress, to protect it.”

OK, so the powerful San Francisco Democrat who is trying to cling to minority leadership in the House of Representatives says her main mission in public life now is to defend a law that was written by an insurance industry lobbyist and brokered in a back room deal with the insurance and pharmaceutical industries – a horrendously flawed bill that perpetuates a system that delivers substandard care at inflated prices to the American public. Reasonable alternatives (like Medicare for all) were taken off the table before public input was even considered.

All of these nonsense arguments were trotted out to deflect attention from the real issue:  the health care system is horribly broken, prohibitively expensive, and since Obamacare pre-empted any attempts at real, effective reform, flawed bandaid measures like Prop 45 are all that’s available to the public – and therefore better than nothing. Let’s talk about anything besides the real human suffering and death the system causes unnecessarily – let’s focus on the bureaucratic problems the measure might cause. (Left unsaid is that the problems are likely to arise because the industry will do what it can to inhibit the optimal functioning of any regulatory scheme it perceives as disadvantageous to its own interests.)

Is Obamacare really working?

The original draft for Obamacare was written by the insurance industry – after they threatened to defeat any reform that did not leave in place their privileged role – to in effect collect a tax on health care in return for “financing” the cost of it. Supposedly they take risk for being the gatekeepers who decide who is eligible for care and who is not and what services should be covered and when. Obamacare was not an attempt to reform the basic problems of the industry. It was a deal to cover more people while leaving the parasitic insurance industry in place to collect their tax on an even larger population than before.

Bear in mind that in any rational system everyone would be covered the same – this business of offering scores of different plans and making distinctions about who is covered and what is covered is what you have to do to create the opportunity for profit within the system. If everyone had the same coverage, and we financed it collectively through the government – we would have no need for insurance company financing and all the layers of bureaucracy that are required to track the distinctions. The amount of insurance industry profits is a tiny fraction of the cost of the bureaucracy required to enable the profits. It adds an estimated $300 to $400 billion annually to the cost of health care.

So yes, some millions of people were able to get insurance who were denied the “privilege” before. This is how Obamacare is “working.” But that could have been done much more efficiently and at lower cost without the insurance industry.

Those who already had insurance are now paying more for the same coverage they enjoyed before Obamacare – or they have had to reduce their coverage by paying higher co-pays and deductibles. There are more underinsured than ever. When people are underinsured – or in other words they face barriers to care in the form of high access costs – they tend not to get the treatments they really need, which in the long run actually increases the overall cost of the system, because they don’t seek care until their conditions are more advanced and difficult and expensive to treat.

The insurance industry still promotes the fantasy of “consumer directed” health care, which is based on the falsehood that the high costs of the system are due to consumers over-utilizing health care, and if they are forced to spend more of their own money for care they will stop being care hogs and make better health care decisions.

When Obamacare opened the system to all those who had been denied insurance due to poverty or illness, the rates were jacked up for those already covered. This was most evident in California for those covered by individual plans in the state of California. Prop 45, by the way, applies only to those covered by individual and small group plans in California, or about 6 million people. The rest of the populations is covered by large employer funded plans or the government. These large employer plans at least have some bargaining leverage with the insurance companies, while individuals and small groups are given no opportunity to bargain for lower rates. They can take what they are offered, and since Obamacare, they no longer have the option to leave it. Thus the proposition as written applied only to those who most need protection.

California Insurance Commissioner Dave Jones said he needed the authority to control rates because the insurance companies had raised prices in California 22% to 88% since Obamacare was implemented in January 2014. The industry argued those increases were intended and justified as part of Obamacare to offset the costs of covering all the people who hadn’t been previously covered.

Huh? I thought they sold us Obamacare on the premise that it would control the cost of health care, not immediately increase it by up to 88%. No, the industry took advantage of the situation – that some increases in overall rates might be expected because the uninsured population might be sicker than the already covered population, even though many of the newly covered would be young healthy people who had refrained from buying insurance previously because they were not compelled to and could not afford it –  and jacked the rates as high as they thought they could get away with.

The insurance companies already knew exactly what their risk was with individuals they already covered, but they took the opportunity to raise their premiums by as much as 80 percent in order to cover projected additional risk. Same people. Same ages. Same illnesses, or not. Now paying up to 80 percent more. Why not? There was no one to stop them.

The rates for my individual plan were increased in the neighborhood of 70 percent effective January 1, 2014. I bought a plan in the exchange instead – but the price of the exchange plan was comparable to the new, inflated cost of my old plan, for about the same benefits. I received a subsidy from the government for most of the cost, but the insurance company received the full, inflated cost, 70 percent more than I had been paying the previous month.

While Pelosi was shilling for the health insurance industry, she was wringing her hands and saying that she supports the concept of cost control through rate review. Of course she offered no alternative proposal.

Meanwhile, the LA Times was twisting itself in knots by pointing out that supporters of Prop 45 were falsely claiming that the proposal would make insurance affordable. Not true, said the LA Times, because insurance is already unaffordable. They got that much right!

Then they said only a major overhaul in the way healthcare is delivered and paid for will make insurance affordable.  Right again!

Then they slipped off the path of truth once more.  They said the government and the industry have already started the overhaul process. They didn’t bother to mention how long this process might take. I’m guessing maybe by next decade they’ll work in a few superficial reforms, after the prices have doubled again, or worse.

Proposition 45 was not a cure. It was nothing more than a bandaid for a fatally diseased system. Obamacare didn’t fix the system. It never even tried. And that’s what Pelosi, the Chronicle, the LA Times and the insurance industry don’t want to talk about. That’s what this proposition was all about. We’re still trying to fix the system that ails us, while they want to pretend that it’s already been cured.

Jeff Sher is a journalist specializing in the health care industry. He lives in San Francisco.

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Jeff Sher is a journalist specializing in the health care industry. He lives in San Francisco.

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