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].
