Although they come first on the ballot, I’m going to put Props 1 and 2 in a later installment, because they’re trickier. Hopefully tomorrow. After that will be ballot measures in Oakland and maybe San Francisco.
Prop 45: Yes. Although the federal government is deeply involved now as well, the state has a major traditional role in regulating insurance. A good consumer-friendly law we already have with car insurance (which insurance keeps spending boatloads trying to roll back!) allows the elected Insurance Commissioner to reject premium rates that are unreasonable. Prop 45 would extend this law to health insurance.
The justification is pretty simple. For markets to work well, you need transparency and competition. Most insurance is complicated and hard to make transparent to the consumer even in ideal circumstances. It also tends toward oligopoly, dominance by a small number of firms – in California, the top four companies had 83% of the insurance market in 2011, and seven had 97%. In the absence of transparency or competition, the government has a role coming in to keep firms relatively honest, since the consumer doesn’t have either the spare time or the market clout to do so.
Right now, the IC reviews health insurance rates to see if they are needed to cover increased costs, and uses the bully pulpit to shame insurers whose increases are unreasonable, but doesn’t approve them in any effective sense – no power to keep them from selling a given product. There have been premium reductions even under this structure, but authority to reject would put real teeth in the consumer protection.
There are charges that Prop 45 interferes with health reform, from the general direction of Covered California, California’s health insurance exchange, which arranges affordable health insurance for people (thanks to the new federal subsidies) with their website and other infrastructure. CovCA has done a great job overall of making sure that it doesn’t become a site for junk insurance, actively negotiating with plans so that the products are affordably priced, even without subsidies, and have decent benefits, networks, and quality. There’s a lot more work to do, but they’re on the right road. However, regarding this measure, they need to be adults*. First, they do not have authority over all insurance in the state – there’s still plenty of individual and group plans they have no control over. Are those consumers chopped liver? Also, their roles are inherently different. CovCA acts like a purchaser, whereas the IC is purely a regulator, and they are both smart (groups of) people with largely shared goals who can figure out how not to step on each other’s toes. In fact, the IC’s new power might make CovCA’s job easier by establishing a better baseline of reasonableness they can further negotiate down from.
The Affordable Care Act recognizes in many ways that oligopoly power on the part of the insurers needs checking, and rate review is an expression of that recognition. Another is Medical Loss Ratios – insurers now may spend no more than 15% or 20% of their premiums on administration and profit, removing one of the ways they used to be able to make money, denying claims regardless of justification. The ACA also calls for states to increase their effectiveness at reviewing the reasonableness of rates, offering $250 million in grants to this end. In short, Prop 45 doesn’t interfere with the ACA, it enhances it.
Will Prop 45 solve the high and rising cost of health care? Certainly not. Insurers only take up about 6% of all health spending. At the root, we as a country spend too much on health services, both in volume of services and in price per service. However, without regulation, insurers can and do get in on that action, and they need to be policed.
A final thing to be aware of: if you have health insurance through a big employer, Prop 45 probably doesn’t relate to your plan, because most big employers self-insure, meaning they keep reserves to pay for health care themselves and just use the insurance companies to process claims, manage networks, etc. The federal government has near-exclusive jurisdiction over this kind of plan.
* Since writing this I’ve learned that the backers of Prop 45 seem to be lashing out at CovCA in retaliation, flagging some no-bid contracts and accusing them, with weak analyses, of not keeping rates down enough. So they need to be adults too.
Prop 46: Yes. Since 1975, there’s been a law in California, MICRA, that limits the damages that can be awarded in medical malpractice cases. Specifically, it limits noneconomic damages – basically, “pain and suffering” damages – to $250,000. That amount has never been adjusted for inflation in 40 years. Prop 46 would retroactively adjust for inflation, bringing it to $1.1 million, and adjust going into the future as well. It would also impose some new rules on doctors relating to drug use and prescriptions.
First, the MICRA side of things. “Pain and suffering” is almost a punchline these days, since in isolation it sounds nebulous and exploitable. But this arbitrary cap ends up diminishing real loss. The cap applies even when someone dies! The effect of inflation on the cap over time has reduced even basic access to justice, because it makes it not just difficult but often impossible for lawyers to pursue cases on contingency. And because economic – quantifiable – damages are untouched, it turns into a class-graded system where a CEO can get huge damages for lost future income, whereas a dishwasher gets little even in the best case.
Medical malpractice is a real thing – the Institute of Medicine estimated in 1999 that 98,000 people a year died due to mistakes in hospitals, and it’s not clear that number has gone down significantly since then. In 2013, the Indiana Department of Health logged 18 surgeries on wrong body parts and 27 foreign objects accidentally left in bodies; these are known as “never events”, things that shouldn’t happen even by accident. But they still happen. And when the harm is serious enough and someone is clearly at fault for it, the victims should have the opportunity to seek restitution.
The court system isn’t the only way restitution can work. Arguably it’s not a great method, because of all the hassle and costs of trials: according to one study, only about 2% of patients who actually suffered substandard care brought any kind of claim, and of those claims, only about half ended up getting paid out. so the benefits to victims are very unevenly distributed. New Zealand has a completely different system, removing courts altogether in favor of a no-fault compensation board. The US has a similar system for vaccine-related injuries. I wouldn’t mind pursuing such a system. But what we have under MICRA is a half-system that denies any shot at justice for many, and it has to go, unequivocally.
Now, you may be thinking “But what about health costs? Won’t this make us all pay more?” And the answer is maybe, a little. There will be somewhat more lawsuits with somewhat more payouts. In most cases, because of the barriers to bringing a successful case, these payouts will be just ones, so I’m not that concerned in general. They should be pretty minor compared to health spending overall: in 2008, medical liability costs were estimated at about $10 billion nationwide, about half a percent of total spending.
There’s also the idea of defensive medicine, that, fearing lawsuits, doctors order extra tests and procedures and generally drive up health costs. But that too is distinctly overblown. The same study attempted a very rough estimate the cost of defensive medicine itself, and they came up with only another $46 billion, or about two percent of spending. Doctors may tell you they are affected by this, but they aren’t necessarily reliable sources: there are lots of reasons for overuse besides lawsuit-prevention.
We also have some real-life experiments. Texas implemented the same $250,000 cap more recently, from 2003, and if tort reform had positive spillover effects, then that sharp discontinuity should have made them obvious. It didn’t: health insurance premiums and Medicare spending kept growing as before, physician supply stayed level, and on the defensive medicine front, there was not even any perceptible change in how often doctors ordered labs, X-rays, etc. Case closed.
Another interesting observation from Texas is that while malpractice payments on behalf of doctors dropped by about two-thirds after the law, the malpractice premiums that doctors paid dropped by only one-quarter, implying the insurance companies pocketed the majority of the savings. This implies that the reverse – liability insurers absorbing a lot of the hit from Prop 46 by taking a haircut on profits – is possible. The National Association of Insurance Commissioners’ data says that California’s medical liability insurers only pay out about 65% of premiums. If Prop 46 passes, consumers and doctors could conceivably team up against liability insurers to bring that up to more like 85%.
Even if you like that MICRA was passed, Prop 46 brings it more into line with reality, specifically the fact that cost of living changes over time. In 1975, $250,000 was 25 years of median household income. Today? Five years. If we don’t change it, inflation will keep eating and eating away at people’s chance of a day in court until “pain and suffering” is good for a 20-year-old car.
Second, the drug provisions. I am somewhat conflicted about this. The backers basically put these in with the MICRA reform in hopes to grab extra votes. Prop 46 would address prescription drug overuse by requiring physicians and pharmacists to check a state database of higher-risk drug prescriptions (especially opioids) before prescribing, to see if there is already a prescription. Overprescription is a problem, and this would perhaps be an improvement, but a rather slight and formulaic one.
More saliently, Prop 46 would require random alcohol and drug testing of doctors in hospitals, It is true that there is enough social deference to doctors that they aren’t always called out on impairment, like in this horrible case in Texas. But random testing is demeaning for anyone and a drug-war holdover. I would not vote for it in isolation.
Looking at the details, though, there are a lot of mitigating factors to this provision that make it less burdensome.
- Random testing is required of all physicians who are employed or contracted with a hospital or have admitting privileges, but it puts no floor under how frequent “random” testing must be. It could be very infrequent indeed.
- The more stringent testing requirement is on physicians who were responsible for a patient when they experienced an adverse event. This makes sense as an area of focus. (And adverse events are defined as those that hospitals already have to report to the state, so there is an existing identification mechanism.)
- It acknowledges and accounts for false positives: for a positive result to be reported for investigation, it has to be “verified positive”, meaning the test is repeated, the physician can offer an explanation (poppyseeds!), the concentration has to pass a threshold, and a medical review officer goes over the case.
- It is only supposed to test for use of drugs or alcohol “while on duty that may impair… the physician’s ability to practice medicine,” so it excludes tests that identify drug use weeks in the past, such as the private sector often uses today.
- To the extent there are more niggling problems that the opponents have identified, like the requirement to test within 24 hours of an adverse event when it might not be known until later that an adverse event happened, I’m pretty confident that implementing regulations will interpret in physicians’ favor, since it’s the Medical Board that will be writing those regulations.