Cross-posted at CalWatchdog.

Non-profit has launched television attack ads against Sen. Ed Hernandez, D-Los Angeles, claiming he has been a roadblock to health insurance regulations because of a conflict of interest.

Using a video clip from a recent Senate Health Committee hearing, Consumer Watchdog is running the ads in Hernandez’s district after it discovered that he has received more than $350,000 from the state’s largest health care provider, Kaiser Permanente for rent on a building Hernandez owns. “The video shows his insensitivity to a constituent who could not afford his health insurance during a recent hearing,” the watchdog website states.

Hernandez, chairman of the Senate Health Committee, denies having a conflict and says that he’s owned the buildings for many years, and Kaiser is just a long-time tenant.

As Chairman of the Senate Health Committee, Hernandez has been working for months on AB 52, California’s health care premium regulation bill. Despite Kaiser’s support for AB 52,  some say the attacks actually stem from Hernandez’s support of amendments to AB 52, requiring transparency and disclosure on intervention fees.

AB 52, by Assemblyman Mike Feuer, D-Los Angeles, would impose rate regulation on private health insurance in California. The California Chamber of Commerce called AB 52 a “job-killer.” It said the bill “creates uncertainty and delays for employers by creating an unworkable complex rate approval and regulation process for employer-sponsored health coverage and adds implementation fees on health insurers to support a complex and regulated plan approval process.”

What Is the Fight Really About?

“As the summer wore on, it became clear that Chairman Hernandez would be the chief roadblock to regulating the premiums health insurance companies could charge to Californians,” recently wrote in a letter to Senate President Pro Tem Darrell Steinberg. “What was not clear at the time was the conflict of interest that should have required Sen. Hernandez to recuse himself from the AB 52 vote and, more importantly, should have prohibited him from serving as Chair of the committee that oversees health insurance and California’s health plans.”

Consumer Watchdog President Jamie Court said in an interview that Hernandez should have recused himself from any involvement in the health care bill. “Does a Judge make a legal ruling on a tenant? Does a journalist write about a tenant?” Court asked. ”No. Hernandez should not be involved in decisions while involved with one of the largest health care providers in the system.”

But some say that appears to be spinning a pay-to-play scheme where none seems to exist — particularly since Hernandez’s top bill this year, SB 703, was opposed by Kaiser.

A Whittier Daily News story reported that Hernandez leases office space in Baldwin Park to a Kaiser outreach division for several thousand dollars a month. “The issue ignited when Hernandez objected to provisions of a bill, AB 52, mandating state regulation of health insurance rates. Kaiser vehemently opposed the bill, and advocacy group Consumer Watchdog has now launched an attack, demanding Hernandez recuse himself,” the story said.

Steinberg called the group’s accusations “ill-conceived and misinformed,” and expressed full support for Hernandez and for the bill in a Sept. 20 letter to Jamie Court.

Hernandez spokesman Tim Valderrama said the Consumer Watchdog attacks are the result of the senator’s support for an amendment to AB 52 requiring transparency and disclosure on intervention fees, which would dramatically impact Consumer Watchdog.

Consumer Watchdog has carved out a niche in the insurance industry by protesting insurance company premium increases on behalf of consumers as an “intervenor,” then getting paid a cut of the eventual savings.

Consumer Watchdog’s Court said that Hernandez’s amendments to AB 52 would gut the intervenor system from the health care bill.

But what many do not know is that Consumer Watchdog’s founder, Harvey Rosenfeld, wrote the law creating the intervenor process — and is now operating a business in which the non-profit organization profits from the law.

“I have no problem with an entity suing on behalf of consumers,” Hernandez said in the Whittier Daily News story, “but when an entity is going to benefit from it financially, there should be transparency.”

Since when is transparency a bad thing?

Intervenor System

In addition to regulating the health insurance industry in California, AB 52 “creates an ‘intervener’ system whereby interest groups can protest changes in health plan design,” stated the bill analysis.

Wrote the California Association of Health Plans in a letter to the Assembly Health Committee, opposing the bill, “This process has proven to be expensive where it has been implemented elsewhere since there is a financial incentive for groups to file protests — they are reimbursed for their legal and advocacy costs by insurers. In the last two years, a single organization has collected over $3.2 million in intervenor fees under provisions of Prop 103.”

As one of the health care bill’s primary supporters, Consumer Watchdog is paid for “reasonable advocacy fees and expenses,” and has made more than $7 million in “intervenor fees” since 2003 by challenging insurance rate hikes, mostly against auto insurers.

One Capitol source who asked to remain anonymous said that Consumer Watchdog has lobbied hard for passage of California’s health care bill to include the intervenor fee clause in order to add another segment of the insurance industry to its client list.

Rosenfeld, the Executive Director and founder of, just happens to be the author of Proposition 103. In 1988, it forced an immediate 20 percent reduction of insurance premiums and established the statewide, elected position of insurance commissioner.

Written into Prop. 103 was a provision which granted the insurance commissioner the authority to review and approve insurance-rate increases on auto and property insurance, and requires insurance companies to pay the costs incurred by consumer representatives who fight excessive rates proposed by insurance companies.

AB 52 now includes a similar provision, which bodes well for Rosenfeld’s Consumer Watchdog, should the bill get signed into law.

According to Consumer Watchdog, since 2003 the group “has challenged the proposed rates of nearly 30 auto, home and medical malpractice insurance companies in California, and these challenges have saved Californians over two billion dollars.”

Valderrama said that Hernandez believes the intervening process can be useful, but that transparency and disclosure is needed of the interveners. “As originally written, the bill didn’t require as much transparency as Sen. Hernandez wanted,” Valderrama said.

The bill was ordered to the inactive file on Sept. 1 by the Senate, where it will remain on the shelf until the Legislature reconvenes and can breathe new life into it. “And now, Consumer Watchdog is blaming Hernandez for failure of the bill on the Senate floor. But he is the reason that the bill passed out of the Health Committee in the first place,” Valderrama said.

The bill’s analysis states, AB 52 “Establishes the Consumer Participation Program within Department of Managed Health Care, which allows for the awarding of reasonable advocacy and witness fees to any person who meets specified criteria and who has made a substantial contribution on behalf of consumers to the adoption of a regulation, order, or decision made by the Director.” is a California nonprofit corporation and makes a business of targeting for-profit corporations for political contributions, and challenges over-compensation earned by the corporations. However, does not willingly share its own compensation information, other than on its IRS form 990 filings, nor is its donor list available.

Democratic strategist Steve Maviglio said that Consumer Watchdog needs to be exposed for targeting Sen. Hernandez, “who simply wanted the group to have the millions it stands to receive in intervenor fees from passage of AB 52 open to audits and the light of day.”