Los Angeles Times Interview : John Garamendi : Can He Cut the Gordian Knot of California’s Insurance Dilemmas?

Probably no executive of California government, except the governor, is under more pressure to develop solutions to long-festering problems than the state’s first elected insurance commissioner, John Garamendi.

In auto insurance, Garamendi must try to implement Proposition 103 over the resistance of the insurance companies, and do what he can to break the long deadlock in the Legislature over relief for low-income Californians unable to afford the state’s required minimum coverage. In health insurance, he and his staff are struggling to write proposals in an era of fiscal constraint. In the Executive Life conservatorship, he must try to avoid liquidation of the company with all the losses to policyholders that step would entail.

Garamendi, 46, a Democrat, was born in the Sierra foothills to a family of Basque, Italian and Irish heritage. He attended the University of California at Berkeley, where he was a star football lineman, and later graduated from Harvard Business School. After marrying, he and his wife, Patti, worked two years with the Peace Corps in Ethiopia. He was elected, in 1974, to the state Assembly and, in 1976, to the state Senate, where he served 14 years. Last November, after unsuccessful tries for governor and state controller, Garamendi was elected insurance commissioner. He and his wife have six children, aged 4 to 21.

Though some colleagues have accused him of arrogance, Garamendi is generally respected for his intelligence and hard work. Often intense and easy to anger, he also can display a sense of caustic humor.

An advocate of no-fault insurance in his early years in the Legislature, Garamendi has now shifted position and, with Assembly Speaker Willie Brown, has been resisting a bill by his successor in the Senate, Patrick Johnston, that would provide a $220-a-year basic no-fault policy for everyone in the state. In response, Gov. Pete Wilson--whom many believe Garamendi may challenge in 1994--recently tried to put him on the spot, calling the Johnston bill an opportunity to impress policyholders that he is working in their interest.

Question: There’s probably nothing you could do that would impress voters more than getting those rate rollbacks. Is Prop. 103 ever going to happen?

Answer: . . . . The process we have under way, I think, will get us there in very short order. The court has affirmed our power to rewrite the regulations, which was a crucial hurdle . . . . It is really an important step, allowing us to take the remaining steps, and we’re well on our schedule to accomplish that. Our regulations, we think, are correct in that they lead to the maximum rollback possible . . . .

Q: Last month, the representative of a leading seller said the insurers would be in court next fall testing the rollbacks. Do you expect that?

A: We expect that the insurance industry will do what it has done the last two years--and that is try to thwart the will of the people, try to stop 103 from ever becoming reality . . . . However, we think that we’re on track . . . . We expect lawsuits. We don’t think they will stop us. They may delay us . . . .

Q: Some political analysts say the reason for political gridlock in Sacramento over auto-insurance reform is that big insurance companies help bankroll Republican politicians, while trial lawyers help bankroll Democrats. Do you buy that?

A: I think there has been political gridlock. That’s obvious. No-fault has been on the table for 20 years, and nothing has transpired . . . . What to do about it is the thing that’s of great interest to me . . . .

I’ve attempted to develop a strategy that would produce what is needed by the public. And what they need is a low-cost auto-insurance policy that covers their basic insurance needs and delivers a payment on a claim in a timely manner . . . . That requires more than tort reform. I think a comprehensive reform of the auto-insurance system is essential--that you cannot take one factor and solve the problem, but rather you have to take all the major cost factors at one time and change or reform each . . . . The overhead and profit of insurance companies, reserves, accounting, all of that . . . . The issues of fraud in a broad context . . . the repair of automobiles . . . including automobile safety, drunk driving, seat-belt use--all these things will reduce the costs in a very significant way . . . . Medical costs . . . .

And the fifth, or sixth, depending how you want to count, is tort. Tort is a major element . . . . There are several ways that have been suggested, over time, to deal with tort costs. No-fault is one. The focus of the debate has been on no-fault all these years, and the result is zip. Nothing has been accomplished . . . .

(My) strategy is to work with the Speaker, have his bill become a total package that deals with all five elements. Fortunately, Sen. Johnston has introduced a bill in the Senate (that) has the governor’s support, so now we have the governor involved . . . . The Speaker’s bill is going to be in the Senate Judiciary Committee at the same time that Sen. Johnston’s bill is there--which is the perfect alignment to create a tremendous amount of political heat. Out of that, I expect to see a comprehensive, low-cost piece of legislation . . . (that) will certainly, in my view, have to have a mechanism to reduce significantly the cost of litigation . . . .

Q: Without tort reform, is there any way to find a policy for low-income drivers that would not have to be subsidized?

A: I think tort reform is essential . . . .

Q: One thing that seems to make Sen. Johnston’s bill attractive to consumer groups, and especially minority activist groups, is that it does have that nice round figure of $220 per automobile. Is there some magic figure you could offer people?

A: . . . . There’s nothing magic about $220 . . . . Sen. Johnston’s bill does not include certain elements, and that creates a problem for people who want to get their car repaired . . . . Does the package need to include property damage? I think there’s a very powerful argument that it ought to, and that’s obviously going to affect the price of $220 . . . .

Q: Still, there is a public-relations attractiveness to $220. What do you think you’d offer people as a reasonable alternative?

A: I’m not about to offer you a number today. That would be foolish, and it would be detrimental to the process . . . . Now, all these bills contemplate that there would be increases in the future, and the insurance commissioner is the guy who has to increase it . . . . I’m not interested in flimflam, and I’m not interested in pie and the sky, because the burden is going to be for the public . . . .

Q: Going on to health insurance, in an era of fiscal constraints and an economic downtown, is there any way to guarantee universal health insurance coverage in California?

A: Yes. The health insurance issue is, I think, the principal insurance issue. Its importance transcends all the other matters we’ve talked about. It’s a fundamental problem in our society. I think the present health-care system is collapsing, and fundamental changes must be made in the first half of the 1990s to put the California or American health-care system back on track, providing health care for all our citizens.

I think the present system is a disgrace for this state, where we have such an enormous proportion of our population without health insurance, where we have disgraceful health care for a large portion of our population--our young children, our poor--and it’s time for us to make fundamental and significant changes . . . .

Q: How can we do it this year, or the next four or five years?

A: The fact is, we must do it . . . . I think we’re wasting an enormous amount of money. The Lord knows, we’re spending a heck of a lot more than anybody else in the world on health care. The present system is, I think, very inefficient and very wasteful both in terms of actual money spent and in terms of human qualities . . . . The U.S. spends 12 cents of every dollar on health care, while other countries in Europe and Japan spend 6 to 9 cents. Yet, they seem to achieve better results . . . .

Q: One other end of this matter is the experiments now undertaken in Oregon and elsewhere to try to limit what procedures and treatments will be covered by whatever broad insurance plan is involved. How do you feel about that?

A: This is a profound moral issue in our society. Public policy-makers are just beginning to wrestle with it, and society as a whole has no clear view of this issue . . . . What I think we may do initially to deal with this is to develop a universally available health-insurance policy that would provide a basic insurance policy for everybody in our state. There would then be a separate and perhaps universally available coverage above that that would cover more advanced and new or experimental procedures, and that additional level of coverage would be the area at which the debate over what would be provided would occur . . . .

Q: What about health-care cost containment--or is that beyond what you can do as insurance commissioner?

A: . . . . It simply is imperative. The 15% to 20% inflation that we’ve endured for the last several years simply cannot continue. There are a lot of reasons for the increasing costs. Each in and of itself is understandable, but the bottom line is that those reasons do not justify . . . continuing escalation. I’ve been involved in cost-containment efforts for 17 years now. I was chairman of the (state Senate’s) Health and Welfare committee . . . . We looked at every conceivable idea at the time, and they’re all the same. The one we chose to use in the ‘70s has been successful, but it has been overridden by additional factors that have come in--intensity of care, technology, cost shifting. Those factors have simply overridden the cost containment that we built into the early 1980s, which was a competitiveness, HMOs, managed health care, the basic reform that I worked on. So cost containment must be implemented . . . .

Q: Who or what is to blame for the troubles of Executive Life Insurance Co.?

A: . . . . The fundamental problem with Executive Life is that it probably was the best practitioner of the Ronald Reagan theory of deregulation, of getting the government out and letting the private sector do its thing. Executive Life was the buyer of last resort for Michael Milken--and as a result managed to accumulate the worst collection of assets of any insurance company in America, and now the price has to be paid, unfortunately by those who are least able to pay--the small policyholders, the pensioner, the people who were unable to get out, or the people who didn’t have the knowledge to get out. That’s a tragedy. . . .

Q: What will it mean to the life-insurance industry if policyholders of Executive Life go unreimbursed or partly unreimbursed, in light of the traditional claim that life insurance is safe?

A: We expect that the industry will provide a substantial assistance so that the policyholders do not suffer the full losses. We expect this to come in the form of either mandatory contributions through the life-insurance guaranty associations of the various states, or through voluntary contributions from insurance companies. The industry knows that its future rests on the public’s belief that insurance policies are secure . . . .

Q: You’re getting a lot of attention right now, dealing with some very hot issues. Did you expect all this? Do you like the attention or would you rather have a little time to get settled in before people started talking about governor and beyond?

A: Well, I don’t know who’s talking about governor and beyond. Certainly, we’re not. I’ve always said that this was a very slippery stepping stone and that it ought not to be considered a good stepping stone, that it was a very risky job . . . . The issues we’re dealing with are extremely important, and therefore filled with political risks. However, I’m just not concerned about that . . . . I’m not blind, but we’ve tried to keep our focus on how does this affect people? Is it good for people? If it’s good for people, then we do it . . . .