OSPIRG Foundation Critical of Rate Increase Proposed by HealthNet

The rate increase, which would impact small businesses, is projected to increase premium rates by 8.8 percent on average, however some families would see rate hikes above 20 percent
The Lund Report

May 10, 2012 -- Small business owners insured by Health Net could see their premiums increase by an average of 8.8 percent starting August 1.

If HealthNet’s proposal is approved, it would affect 38,492 Oregonians – nearly 29 per cent of its 134,000 members across Oregon and Washington. The rate hike is necessary, according to HealthNet,
because its prescription costs have risen by 11 percent and medical costs by 8.9 percent since 2011.

HealthNet’s proposal is under review by the Insurance Division, which held a hearing April 27 where Ellertson, its president, pointed to two initiatives launched by his company to lower costs. A wellness
credit offers gift cards to patients who develop good, preventative healthcare habits by working with their primary care physician. The second initiative, the CommunityCare Network, is still in its early stages
and is designed to build a close partnership between a patient and their primary care physician.

Despite this positive news, Laura Etherton, consumer advocate for OSPIRG Foundation, is concerned about the impact of Health Net’s rate increase on Oregon’s families.

“We’re trying to take a real world look at this,” she said later. “We want to know what rates might actually be for real people if this increase takes effect.”

If HealthNet’s rate increase is approved, more than 1,400 Oregonians would see their insurance rates increase by more than 10 percent, while 2,000 people would face rate hikes above 20 percent, according to OSPIRG’s analysis.

That means premiums for a medium-level family could top $16,800 a year. “This is more than 26 percent of the Oregon median household income for a family of three or more even before factoring in potential
out-of-pocket costs, Ethterton said.

HealthNet also based its rate increase on erroneous information, and its projected “medical trend” of 9.2 percent appears “inaccurate and excessive,” she said. HealthNet seems to have “double counted
the impact of prescription drug trends and did not adequately justify its estimates for increased utilization of medical services or drug cost increases,” she added.

Besides the financial impact, Gayle Woods, operations manager with the Insurance Division, expressed concern about HealthNet’s profit margin. Last year, its profits were considered higher than projections,
reaching a 6.2 percent margin between October, 2010 and September 2011 compared to projections of 1.1 percent.

“Sometimes we miss high, and sometimes we miss low,” responded Ellertson, citing “claims volatility,” as one reason why it’s often difficult to predict actual cost and profit margins. Because there are fewer employees enrolled in small business plans, it only takes a few large claims to raise premiums for all those employees, he said.

“We’ve seen unanticipated levels of profit over the past year or two for a number of insurance companies,” said Cheryl Martinis, spokesperson for the Insurance Division. “This isn’t unique to HealthNet and, in fact, was a national trend.”

Medical claims have been down significantly nationwide, she explained, which can boost insurance profits. The economy and people’s inability to pay their share of medical costs has probably resulted in fewer claims. Still, no one really knows for sure why claims are down.

Determining the insurance premiums for small businesses comes down to two factors, Etherton explained. The “experience factor” refers to the percentage of employees enrolled in a company’s health plan, while the “participation factor” refers to the number of major claims filed by employees during a specific time. If a few people have a significant number of major claims and only a small percentage of employees actually have coverage, it can result in a large rate hike the following year.

HealthNet is neglecting important strategies in the reduction of healthcare costs and the improvement of care quality, said Etherton, who encouraged the company to shift its focus from raising deductibles
and cutting care to cutting waste and focusing on prevention and other strategies proven effective in keeping people healthier.

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