Prop 103 of 1988 Saves Californians Over $200 Million
Implications in New Study Based on 15 Years of Data is Timely for Health Insurance Bill Up in Committee Today
FTCR released a new study this week of California’s landmark insurance reform initiative, Proposition 103, that shows that the nation’s most effective insurance regulation system has dramatically reduced costs for consumers and provides a model for health insurance reform. The Assembly Appropriations committee considers legislation today (AB 1554 – Jones) that would regulate the health insurance industry ala Prop. 103.
New data reflecting 15 years of insurance regulation under Proposition 103 illustrate clearly that insurance regulation saves consumers money. The price of auto insurance dropped 7% in California between the 1989 implementation of Proposition 103 and 2004. Motorists around the country saw their rates jump by 47% in the same 15-year period. California plummeted from the 2nd most expensive state for auto insurance in 1989, to the 21st spot in 2004. Drivers nationally pay more on average for auto insurance than California motorists. Consumer advocates saved drivers $204 million (and another $596 million to other consumers) using Proposition 103’s to challenge excessive rate increases over just the last four years.
When voters approved Proposition 103 on November 8, 1988, they spoke out against the greed and power of an unfettered insurance industry that was raising rates at will to keep up with the vagaries of the stock market. A product as integral to economic life and financial security as insurance should be overseen by a vigorous regulatory system to protect consumers and ensure fair and reasonable insurance rates.
Consumers adrift in the unregulated health care market are now experiencing the same unjustified price hikes that California drivers revolted against when they passed Proposition 103. Proposition 103’s prior approval requirement that insurance companies open the books and justify premiums before raising prices would protect health insurance consumers from unreasonable, unaffordable premiums, just as they lowered auto insurance premiums in California over the last 15 years.
Policyholders in the unregulated portions of California’s insurance market would benefit from the cost savings and transparency of a strong regulatory regime.
California’s experience under Proposition 103 proves that the way to rein in skyrocketing insurance rates is through active regulation of insurance companies.
Read the study online.
Under Proposition 103, insurance companies must justify any rate changes prior to imposing higher rates. The law, which applies to most lines of property-casualty insurance also sets standards for company profits, allows consumers to review insurer data and challenge proposed rate increases and applies anti-trust laws to insurance companies, which are exempt from such laws in most of the country. Proposition 103 also required insurers to refund over $1.2 billion directly to consumers to compensate for excessive premiums during the 1980s.
AB 1554, by Assemblyman Dave Jones (D-Sacramento), would apply Prop 103 to health care by requiring health insurers to justify their rates and get approval for increases. Such regulation would reduce consumer premiums by taking on health insurers overhead costs — including advertising, administration, and CEO salaries — which have become the fastest growing component of health care spending. AB 1554 will be considered by the California Assembly Appropriation Committee today.
Finally, despite the insurance industry’s automatic negative reaction to insurance regulation, California, under the stringent rules of Proposition 103, has been a more profitable environment for insurers than the nation as a whole, the study also explains. For example, between 1995 and 2004, the average annual profits of California auto insurers was 11.1% for private passenger auto insurance compared to 8.5% nationally.
Insurance regulation serves to produce the most appropriate premiums for the risk insured and guards against inadequate, as well as excessive and unfairly discriminatory rates.
Consumer Advocate Carmen Balber has been with the Foundation for Taxpayer and Consumer Rights for over six years. She holds a B.A. in Politics from Pomona College.
