Regence Rate Increase Sets the Stage for More Consumer Involvement
July 20, 2011 -- It’s no surprise that officials at Regence BlueCross BlueShield are disappointed after the Insurance Division turned down its 22.1 percent rate increase yesterday, giving them a 12.8 percent hike instead.
But insurers such as Regence need to know that the Division intends to look more deeply at future rate requests to get a handle on the underlying trends. The Division regulates 12 percent of the Oregon market, representing individuals and small businesses.
“Historically, insurance regulators haven’t gotten involved in healthcare costs,” said Teresa Miller, administrator of the Insurance Division, who’s intent on changing that scenario. “I also want to give consumers a window into the rate decision process.”
Miller’s confident the Department of Health and Human Services will approve a $4 million grant this summer to help states deal with insurance rate requests over the next three years. With those dollars, the Division will make the rate hearings public, starting in October, using an electronic format, so consumers throughout the state can digest and understand the process.
“People feel frustrated getting these huge rate increases and are looking for an explanation of why costs are going up,” she said. “Regulators have a responsibility to do everything we can to explain what’s going on.”
Other states such as North Dakota don’t face the same double-digit increases sought by Regence. The reason: Oregon is more competitive, having seven domestic insurers, while North Dakota only has one.
When that North Dakota insurer begins negotiating with hospitals, for example, it has more leverage over cost increases and can tell hospitals how much they’re willing to pay, and the hospital has no choice but to agree, Miller learned.
Insurers Need More Negotiating Power
Miller doesn’t believe Oregon should curtail the number of insurers, but wants to give them more negotiating power over providers such as hospitals.
“I hear from carriers who want to do certain things and they can’t get providers to negotiate,” she said. “One thing we could do is require insurers to open up their contracts and make them public. These are some of the things we’re looking at because everyone wants to know how much they’re paying. If we, as a regulator, can say, that everyone has to have such a clause in their contract, hospitals can’t go from one insurer to another. Insurers get the push back and don’t like the bargaining positions with hospitals. We, as regulators, have a responsibility do everything can to explain what going on with rate increases.”
Miller also intends to seek legislative approval next February requiring insurers to include a “never events” clause in their provider contracts so policyholders aren’t saddled with paying the consequences if, for example, their wrong leg is amputated.
“I know some insurers have such contracts, and I’m not pretending this will change the world,” Miller said. “Every insurer should be doing this.”
Rep. Tina Kotek (D-Portland) introduced such legislation in the last session, however hospitals opposed the bill and voluntarily agreed not to bill for never events, Miller said.
“There’s no silver bullet, and this concept is still in its infancy” said Miller, who’s awaiting an actuarial report that will provide more details. “But, insurers do have to come to us for approval and somehow we need to find a way of having never events in their contracts because it could impact their rates.”
The Regence Rate Decision
Although Regence insists the decision by the Insurance Division “overlooks future costs and utilizes overly optimistic assumptions,” according to a press statement by its president, Jared Short, Miller believes otherwise.
“I disagree with their characterization,” she said. “Regence has been cutting back on its rate decisions in recent quarters, their plans seem to be doing better and they’re losing less money than in 2008.”
Going forward, Regence is expected to lose money on its 59,000 individual members, but should be able to absorb those losses because it has very strong reserves -- $544.2 million at the end of 2010, while its minimum surplus requirement is only $112.2 million, according to the Division.
Had Miller approved anything less than the 12.8 percent, she believes it would have forced even bigger rate hikes down the road. Ultimately the key, she said, is to stabilize rates.
“I didn’t like approving the 12.8 percent increase. My goal is to make a dent in the 12.8 percent in the future,” she said.
"This is still a double-digit increase" said Sen. Chip Shields (D-Portland), who introduced legislation that failed last session which would have required the Division to hold public hearings for all rate requests.
“This was a good first step in bringing the rate review process out from behind closed doors,” he said. “Regence clearly couldn't justify its proposed 22.1 percent increase, and the more sunlight we put on rates, the lower they'll be."
Shields intends to monitor the Division's efforts to make the rate review process fairer and more transparent. "But if these efforts falter, I'll reintroduce even tougher legislation in the February 2012 session," he added.
Laura Etherton, health policy advocate for the Oregon State Public Interest Research Group, called it “pretty good news” that the Division knocked down Regence’s rate request by nearly half, to 12.8 percent, which means, she said, “that $12.5 million will stay in consumers’ pockets, and that’s good news.”
No one’s dancing in the streets about the decision, she cautioned. “It’s clear, from the decision, that the Division took a very careful look at the rate filing and agreed with us that the 22.1 percent wasn’t justified. The medical trend number was inflated, the profit was inappropriate and there are real concerns about how rising rates impact enrollment numbers and ultimately impact the stability of insurance.”
Going forward, Etherton added, it’s important for everyone in industry to redouble their efforts to reduce waste and improve quality of care to lower healthcare costs and bring rate increases down.
What the Insurance Division Concluded
In reaching its decision, the Division disagreed with Regence’s estimates of future claims costs, including some reform costs under the federal Affordable Care Act. Additionally, Regence had built into its rate request a 1.1 percent profit, which was found unnecessary given that the company’s current surplus is healthy.
Regence’s individual plan enrollment peaked at more than 100,000 members in 2007, the year after the company decreased rates by 16 percent. However, since 2007, Regence has sought a series of rate increases to stem losses on its plans, and individual enrollment dropped to less than 60,000 members. Regence estimates that it will continue to lose money on its individual plans with the lower amount approved by the department.
At the public hearing on June 2, many Regence members asked why the company needed such a significant rate increase after changing its plans last year to allow members to choose reduced benefits for lower premiums. The company said that federal health care reforms required it to offer benefits – such as preventive care with no cost sharing for members – that it had not planned to offer. The Division acknowledged this was correct, but adjusted the amount of additional expense Regence attributed to the reforms.
TO LEARN MORE ABOUT THE DECISION, CLICK HERE