THE BLOG
11/03/2014 11:16 am ET Updated Jan 03, 2015

Insurers Spending Cash, Spreading Fear in High-Stakes California Showdown

Thomas Barwick via Getty Images

As I predicted two months ago, California voters have been bombarded by a group with a consumer-friendly name warning that a vote for a ballot initiative tomorrow would allow "one politician" to "interfere" with their health care treatment options.

Proposition 45 would not do that, but California's biggest health insurers have spent $57 million of their customers' precious premium dollars trying to persuade voters into thinking that it would.

The insurers have been conducting a classic campaign of fear, uncertainty and doubt, but, as usual, doing so behind the scenes. They have funneled those millions to a front group called Californians Against Higher Health Care Costs, which they hope folks will believe is supported primarily by doctors and nurses and other providers. In reality, approximately 98% of the funding has come from five insurers that control the state's insurance marketplace: Anthem Blue Cross, Blue Shield of California, Kaiser, Health Net, and UnitedHealthcare.

What Proposition 45 would actually do is give the state's insurance department the power to reject unreasonable rate increases. California is one of only 15 states where insurance commissioners don't have that authority.

Insurers want to keep it that way. They really hate it when a state official calls them out on excessive rate hike proposals -- because they usually lose.

In 2011, for example, Maine's commissioner, Mila Kofman, concluded that Anthem Health Plans of Maine's proposed rate increase of 9.7 percent was excessive. She ruled that Anthem could not justify more than a 5.2 percent increase.

As the Bangor Daily News reported, Kofman found that the insurer's proposed increase would have resulted in "built-in profits of close to $2 million in the individual market alone."

Outraged by Kofman's audacity, the insurer sued her. The case went all the way to the state supreme court, which ruled in February 2012 that Kofman's decision was appropriate. Anthem had to comply.

It's worth nothing that Anthem Blue Cross of California is part of the same for-profit company that owns the Anthem plan in Maine. If a majority of Californians vote no, as insurers hope they will, the profit margins of Anthem and the other companies behind Californians Against Higher Health Care Costs will not face the same scrutiny as they do in most other states.

The health insurers also despise Consumer Watchdog, the Santa Monica-based organization that was instrumental in getting the initiative on the ballot. Consumer Watchdog was also behind a successful ballot initiative in 1988 (Proposition 103) that gave the state insurance commissioner the authority to limit auto and home insurance rate increases.

I know from my days in the insurance business that Consumer Watchdog has long been a thorn in the side of HMOs. I remember how annoyed we all were whenever the media would quote Consumer Watchdog's president, Jamie Court, when he attacked one of our companies for denying coverage for doctor-ordered procedures. We were even more annoyed when his book, "Making a Killing: HMOs and The Threat to Your Health," was published in 1999.

As with Proposition 103, groups like Consumer Watchdog would be able to challenge health insurance rate hikes on behalf of consumers in legal proceeding if Proposition 45 passes. The groups would receive "intervener fees" if their challenges are successful.

Critics of Prop 45 say that allowing such intervention would lead to frivolous lawsuits. (One of the insurers' allies in the campaign is the Civil Justice Association of California, a group that advocates for tort reform on behalf of businesses.) Consumer Watchdog says in response that in the 12 years it has been able to intervene in auto and home cases, it has received only $8 million in intervener fees while policyholders have saved $3 billion as a result of their interventions.

Consumer Watchdog and its allies, which include the California Nurses Association, have raised and spent less than $4 million in support of Prop 45, which is just 7 percent of what insurers have spent. That's not enough money to counter mailers Californians Against Higher Health Care Costs have sent to voters with scare headlines like this one: "Prop 45 gives one politician control over health care benefits and treatment options." In the insurers' most recent mailer, those words were accompanied by a photo of a woman in a hospital gown with her hands clasped as if in dread of something unpleasant about to happen.

The insurers' campaign apparently has persuaded a lot of people to see things from their perspective. While previous polls have shown that most voters support the proposition, one poll last week showed opponents in the lead. Fifty-seven million dollars can spread a lot of fear, uncertainty and doubt.