OSPIRG Report Calls on Insurers to Do More to Control Costs

The new report says 2009 insurance reforms have resulted in $80 million savings, but says health insurers are still not being held fully accountable for their hyper-inflated rate increases.


April 19, 2013 — The Oregon State Public Interest Research Group Foundation has released a major report on Oregon’s health insurance rate review policy, finding that the Insurance Division has reduced $80 million in healthcare waste after the division’s prior approval process was strengthened by the Legislature in 2009.

“It required the process to be way more transparent,” said Jesse Ellis O’Brien, the healthcare advocate for OSPIRG. “Rate review is a key part of the package of healthcare reforms that Oregon is trying to roll out right now.”

The stronger standards have led insurers to reduce administrative costs by 5.4 percent, reversing a trend last decade that showed an increasingly smaller percentage of insurance costs covering medical expenses.

The state Insurance Division only has prior approval for health insurance rate increases in the individual and small group markets — roughly 11 percent of people who have coverage. But the so-called Wakely Report commissioned last summer showed that market share would likely double as a result of the Affordable Care Act, as more employers drop health insurance benefits, expecting employees to receive insurance through exchanges like Cover Oregon.

“It’s going to grow dramatically,” O’Brien said.

O’Brien said the Insurance Division has steps it still needs to take to improve the process and hold insurers more accountable for the escalating costs of healthcare.

Insurers Not Detailing Cost Containment

The Legislature has required insurance companies to reveal strategies for cost containment and its effects on rates, but O’Brien said most insurers have given the Insurance Division little more than public relations narratives — with very little concrete data to back up their claims.

“There’s no accountability,” O’Brien said. “Rate review is not making sure they have actual results for cost-containment programs.”

The OSPIRG report suggests several ways insurers could try to force providers to hold down costs — such as the creation of a coordinated medical home, punishing excessive hospital re-admissions, paying lower reimbursement rates for procedures that result from surgical errors and prioritizing evidence-based medicine.

O’Brien said part of the problem with a healthcare system with multiple payers is that individual health insurers often don’t have much leverage against hospitals, particularly when they have monopolies in towns such as Roseburg, Klamath Falls or Lakeview.

As a result, hospitals are more able to overcharge private commercial insurers than larger government entities like Medicare or Medicaid or as they would be in a single-payer system.

O’Brien argues that the Insurance Division should refuse to improve rate increases if insurers fail to show they aren’t doing everything in their power to keep costs down. He said the Insurance Division has been interested in going this direction, but it needs more expertise beyond actuarial controls, which O’Brien said could be provided by the Oregon Health Authority.

Insurance Commissioner Lou Savage declined to be interviewed for this article.

Savings = Insurers Gaming System

Sen. Chip Shields, D-Portland, a frequent Senate critic of the insurance industry as well as the Insurance Division, told The Lund Report he remained skeptical that the revamped system had actually saved $80 million in healthcare costs.

He said insurers often game the system and ask for exorbitant and unjustifiable rate increases as a negotiating tactic.

In 2011, former Democratic Sen. Charlie Ringo of Beaverton testified before the Senate Consumer Protection Committee saying that insurers regularly ask for much more than what they need, expecting the Insurance Division to meet them halfway.

At that time, Ringo said the Insurance Division had the ability to reject a rate increase outright or call a public hearing, but it had not done so. Instead, the Insurance Division typically settled each case by allowing increased rates for insurers, just lower than what the insurer proposed at the bargaining table.

OSPIRG found that the Insurance Division had cut rates 17 percent from the health insurers proposed hikes since 2010, after the change in the law. Before the law, the rates were cut 6 percent. At the same time, insurers have not asked for as high of rate increases.

“It’s definitely been clear, having greater scrutiny, the insurance companies are asking for smaller increases today than they used to,” Shields conceded.

The OSPIRG report included one table that showed that PacificSource Health Plan projected a 10.5 percent increase in health costs in 2011 — but in 2012, it reported that those actual costs only increased 7.1 percent — an overstatement of 47 percent.

In the same table, Regence BlueCross BlueShield projected health cost increases of 12 percent in 2011. The actual increases reported in 2012 were 10.8 percent — a relatively low 11 percent overstatement of costs compared to PacificSource and other insurers.

“Medical inflation rates have been at all-time lows these past few years, but they keep asking for higher rate increases,” Shields said. “I want to make sure that all these numbers add up.”

Shields said he was not convinced that the Insurance Division would force Pacific Source to factor that 47 percent savings into its rate review the next time it seeks a hike in premiums for consumers.

Shields Draws Attention to Study

The senator said he would be hosting an informational hearing on the OSPIRG report later this month in the Senate General Government, Consumer and Small Business Protection Committee, which he chairs.

He has invited scholars from the Georgetown Health Policy Institute and former insurance commissioners from Maine and Iowa to participate.

One legislative action that the report calls for would require insurers to notify consumers of steep potential rate hikes that are pending before the Insurance Division.

But a 2013 measure that would have required insurers to do that — Senate Bill 413 — was dramatically altered on behalf of Regence BlueCross BlueShield, likely defeating that proposal this session.

O’Brien said he was hoping the House would pass a version that restores the notification requirements. He also said the Insurance Division has the power to require the notices administratively, but have not yet done so.

The full OSPIRG report can be found here.

Reporter Christopher David Gray can be reached at [email protected]

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From above: "The Legislature has required insurance companies to reveal strategies for cost containment and its effects on rates, but O’Brien said most insurers have given the Insurance Division little more than public relations narratives — with very little concrete data to back up their claims. “There’s no accountability,” O’Brien said. “Rate review is not making sure they have actual results for cost-containment programs.”" O'Brien's critical comments are well-founded in reality. Broadly in our industry (health plans), all but a few self-funded employers are not very interested in paying for medical risk reduction programs unless the returns are nearly instantaneous (within a year or two at most); and for insured business (plan at risk), in most companies cosmetically attractive medical cost management is far more common than the harder, more costly, longer-term kinds of work that actually promise better health and lower costs. We call some of these more popular programs "disease management lite". I speak from very long experience as a medical director. There are exceptions, but they are uncommon enough to prove the rule. Mr. O'Brien's severe skepticism is on target. One of the most important things that might change this picture is hard-nosed rate regulation that demands a change, just as a single-payer system (federal) where the national budget comes in even more direct conflict with medical spending would have a salutary long term effect on cost management--harsh, but needed, by some means. The millions who cannot afford access to good care now, some of whom still will not even after the ACA takes full effect, would benefit as costs actually changed.

I read OSPIRG's section on cost containment and found the 5 pages mostly contains ideas that are already implemented by ACA. These include reducing health care disparities, readmissions, and medical homes. It also contains little more than a public relations narrative. It doesn't tackle the hard questions of cost containment such as: 1. Fee for Service payment structure that addresses volume 2. Medical schools that graduate 70% specialists and the AMA that maintains a system that pays specialists twice as much as primary care 3. A hospital system that consumes 50% of the health care dollar but without data systems in place that can tell how that money is spent. I fear that OSPIRG is using the insurance companies as fodder for their door-to-door fundraising. Knocking on someone's door to tell them about out of control insurance companies is easier than a conversation about an out of control American Medical Association.