Prop. 45’s resounding defeat is a boon for health insurers

Already a financial bonanza for health insurers, Obamacare paid off for the industry again at the ballot box as Californians soundly rejected a bid to rein in health insurance rates.

Even so, the companies still face heat over their ever-increasing health insurance premiums, and pressure will build on California’s Obamacare exchange to hold the line on rates.

California’s biggest health plans, led by Anthem Blue Cross and Kaiser Permanente, spent millions of dollars on ads portraying Proposition 45’s rate regulation as a threat to implementation of the health law. In a lopsided result, 60% of voters joined the industry in opposition.

Proposition 45 would have granted the state insurance commissioner veto power over rate increases for about 6 million Californians with individual and small-business policies. California regulators, unlike 35 other states, don’t have authority to block rate hikes that are deemed excessive.

Despite the stinging loss, supporters of rate regulation vowed to keep fighting on behalf of consumers in the courts, state Legislature and possibly again at the ballot box.

In 2010, Anthem tried to raise rates by up to 39% in California. That move sparked national outrage and helped propel the Affordable Care Act into law.

“It’s incredible that an industry that’s so unpopular could do so well in this election,” said Robert Laszewski, a healthcare consultant who has closely tracked California’s implementation of the health law. “Pro-Obamacare forces and anti-regulation folks formed a 60% coalition. It was a strange set of bedfellows.”

Both sides agreed the outcome could have been far different had the vote been held two years ago as intended.

The ballot measure came up short in 2012 on a state tally of petition signatures. Since then, the Covered California exchange has twice negotiated lower-than-expected rates and more than 1 million Californians signed up under the Affordable Care Act.

Nationwide, health insurers have gained millions of new customers through state exchanges and an expansion of Medicaid. Shares of health insurers have soared on Wall Street.

The delay getting on the ballot allowed health insurers to use the state’s successful launch against the initiative and prompted prominent Democrats such as House Minority Leader Nancy Pelosi to join the opposition.

Early on, the insurance industry framed Proposition 45 as at odds with Obamacare. The No on 45 campaign hired the former head of the Massachusetts exchange to issue a report citing numerous ways it was incompatible and potentially harmful to the coverage expansion.

Covered California echoed those concerns. Peter Lee, the exchange’s executive director, warned that the ballot measure could undermine his ability to negotiate rates with insurers and might prompt companies to leave the market.

Jamie Court, president of Santa Monica-based Consumer Watchdog and author of Proposition 45, said his campaign was badly outspent and hurt by low voter turnout. Health plans and their allies contributed $57 million to defeat the initiative while supporters raised less than $4 million.

“I think the insurance companies did a great job of using Obamacare as a smokescreen to confuse the public,” Court said. “They were hiding under the skirt of Nancy Pelosi. Insurance price gouging is going to intensify without Proposition 45’s protections.”

Pelosi said Californians realized Obamacare is working in the state and didn’t need to take an unnecessary risk.

“This proposition — written several years before Covered California was up and running — would have injected confusion and uncertainty into the health coverage options of millions of California families,” the San Francisco Democrat said.

Insurance Commissioner Dave Jones won reelection Tuesday, but he’s left with no real power over health insurance rates. Jones had invested significant political capital in campaigning for Proposition 45 and drew the ire of fellow Democrats at times for his criticism of Covered California.

Jones viewed rate regulation as a missing piece of the Affordable Care Act. He tried drawing attention to that shortly before the election by lashing out at Anthem Blue Cross, a unit of industry giant WellPoint Inc., for overcharging small businesses by $33 million.

The commissioner called Tuesday’s vote a major setback. “Health insurers flooded Californians with $57 million worth of false television commercials, radio ads and slick mailers,” Jones said. “Our consumer coalition simply could not compete with that.”

Jones’ backers see the fight returning to Sacramento. “We expect the rate regulation debate to return to the Legislature, possibly with more momentum,” said Anthony Wright, executive director of Health Access. “We will continue to advocate the simple point that patients shouldn’t have to pay premiums deemed unreasonable by regulators.”

Robin Swanson, a spokeswoman for the No on 45 campaign, said voters carefully examined the issue and determined it was “fundamentally bad public policy.”

Consumer Watchdog failed to pull off the kind of low-budget upset that made the group and its founder, Harvey Rosenfield, powerful players in the auto and property insurance market with passage of Proposition 103 in 1988.

Veteran political watchers said backers of rate regulation always faced an uphill climb.

“When it comes to a traditional ballot initiative, not put on the ballot by the Legislature, voters by default are skeptical,” said Phillip Ung, director of public affairs at California Forward, a nonpartisan public policy group. “They see them as special-interest sponsored initiatives, and it’s a very tough job for a Yes campaign to convince them otherwise.”

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Twitter: @chadterhune, @marclifsher