Rate Review Alone Won't End Cost Spikes
A $1 million federal grant will shed more light on rate increases but won’t end the escalation of medical costs
Most analysts agree that escalating insurance rates are a direct result of higher fees demanded by hospitals – particularly those in one-hospital towns – and physician specialty groups.
“In the end medical costs drive premiums,” acknowledged Cheryl Martinis, spokeswoman for the Oregon Insurance Division. “That’s the dilemma everyone faces.
Are we saying that these rate review grants are the answer to controlling healthcare costs? No. However, we will have additional tools to do a better job of making sure we reject any unreasonable rate requests and that we shine as much light as possible on what’s driving insurance costs.”
Oregon officials hope to use $150,000 of the grant to delve into the underlying issue of medical costs by hiring a consultant. That proposal was initially turned down by Health and Human Services Secretary Kathleen Sebelius. But officials refuse to take no for an answer.
“We intend to go back to HHS and ask them again about doing this study; it could be outside the scope of this grant,” Martinis said.
Rhode Island, for example, requires that a certain percentage of insurance premiums be spent on primary care physicians instead of specialty care. “Perhaps there are things like that we could look at,” she said.
When an insurer does file a rate increase in Oregon, they’ll soon be faced with new requirements such as showing their hospital and pharmaceutical expenditures by their line of business -- individual coverage and small group. Consumer organizations and state agencies will help draft such recommendations. “This will give us new information on medical cost breakdowns,” Martinis said.
Here’s how the rest of the $850,000 grant will be spent by the Insurance Division:
A consumer advocacy group will receive $100,000 to engage the community and come up with reasonable standards when insurers submit rate increases. For example, does a company’s assumptions about the likely growth in medical costs makes sense based on historical and other information? Information about this grant process will be posted on the Oregon Procurement Information Network.
$450,000 has been set aside to hire four new employees – an actuary, who’ll look at the impact of rate filings on all policyholders; a market analyst who’ll conduct spot audits of insurance companies; a project coordinator who’ll gather information about health insurance rates and help explain those decisions to consumers, and a rate filing intake coordinator who’ll determine if the filing requests are complete and provide background information.
Technical website and computer system improvements will absorb $200,000 so consumers can more easily track rate requests. A host of internal database improvements will allow systems to talk to each other and to outside computers.
$100,000 to establish a process to collect and report information on the large group market to HHS.
Even though the Insurance Division lacks authority to review rate requests for large employers (50 or more employees), the National Association of Insurance Commissioners is developing a template, outlining the specific information insurers must submit to the federal government on large employers.
“The required reporting is to start in late 2010 but many states are balking since they don’t yet know what is to be reported and don’t yet have systems in place,” Martinis said. “Once we have this information, we will certainly do some kind of review but we won’t be approving or denying rates. However, again, we will have a new piece of information that we are frequently asked about, which is: ‘What kind of rate increases are large groups seeing.’”
In the end, the majority of these efforts involve transparency – educating consumers about what’s driving health insurance costs.
“We’ve been pointing out that people aren’t going to see significant changes in health insurance costs until the rising costs of healthcare are addressed,” Martinis said. “However, it’s a process to get people to realize that medical care truly is resulting in these insurance costs. Also, having people understand medical costs is a key step toward everyone understanding their own role in addressing this problem – whether it’s a healthy lifestyle or wise use of insurance or simply careful research into a medical procedure.”
Learn More
To review the grant proposal submitted to HHS by the Oregon Insurance Division click here for a pdf.
For related coverage on Oregon rate regulation click here.
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Comments
Your argument is compelling if you accept the premise of 300% profits. I'm very curious, however, what evidence you have for this. I follow Wall Street analysts fairly closely and they do not seem to share this rosy view of commercial insurers' profits. In fact, national insurers such as Wellpoint, United Health and Cigna have been in the proverbial dog house for several years (partly owing to uncertainty around health care reform). How to explain the difference in outlook for the sector?
I would say the dog house is all relative. Please see our related coverage of Oregon health insurance financials.
The story on "Oregon Health Insurance Profits Soar," really serves to make my point, Net profit margins of 6.7%, or 3.7% on average, are not large, relatively or absolutely, as they are fairly close to the cost of capital for private sector entity like a commercial insurer. Comparing cost of capital to profit margins is a good way to establish an objective view of the "appropriateness" of a company's profits. This is the bottom line, financially and rhetorically. It is a far cry from "300% profits."
Both the story and the comments raises some concerns for me about the level of financial literacy of the Lund Report's readers as well as the rigor of its analysis of financial issues. For example, is it reasonable to claim that profits are "soaring" when they are being compared to two years of recessionary economic activity? Does this not even warrant a mention? If not, why not? Are verbs like "shatter" and "raked" useful to the objective analysis of this subject or do they merely make for more compelling reading? In the story above, it is noted that most of Regence's net income (not the same as "profits," by the way, but rather how much cash was left after paying all operating expenses) was due to investment income, which would imply these are not related to its operations in any way. These are investments, not denied claims. Judging from the comments of your readers, many of them may need to be educated on this subject, not fed a bunch of hyperbolic rhetoric.
I am a financial supporter of the Lund Report. I am also a businessman (but no fan of commercial insurers, I might add). I urge you to refrain from resorting to overheated verbiage, however fashionable it may be. It does nothing to strengthen your arguments (some of which are very important and need a thorough airing) and does much to damage the Report's reputation as a thoughtful source of news and analysis.
How can you ignore the fact that 300% insurance company "surpluses" (profits) is the leading cause of premium increases? I firmly disagree that provider fees and medical costs are driving insurance premium increases. As a former insurance regulator who reviewed health insurance utilization data I assure you that greed is what drives them. Insurance companies have a longstanding history of determining their own profit margins. In the beginning health insurers, particularly the Blue plans and Kaiser, used utilization data to justify rate increases. That simply hasn't been the case for the past couple of decades. None of the plans uses a moral imperative to curb their profits anymore. Accruing excess reserves, otherwise known as profits, is their only imperative. Call this what it is: greed. What do we do to curb it? Limit insurer profits to 15%, as is done in Europe. Is this really socialism or fiscal prudence? Government health programs pour billions into insurer profits in spite of their moral imperative to limit excess and serve the greater good. If all health insurers were limited to 15% profit they would either have to play by the rules or leave. Many will threaten to leave the state and some may, but many of them are the same companies that accept a 15% profit limit in other countries because those are the rules -- and face it, 15% is a healthy profit margin.
Now that's scary -- you claim to be a former insurance regulator and you don't believe it's medical claims that are driving costs...I've seen the filings, I don't know how you can be in denial. PLUS, you apparently can't tell the difference between profit (what's left after paying the bills) and Medical Loss Ratio. According to the state's own report, profits are in the 1-3% range, and MLR is already well under the 15% level you cited. So, if it's math- and accounting- challenged people like you doing the regulating, heaven help us.
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