PEBB Expects Premium Rise of 5 to 10 Percent, Busting Budget Caps

After three years of holding inflation to a minimum, the health plan for state workers returns to high medical inflation for 2017, failing to meet the 3.4 medical inflation rate set by the Legislature.

The new premiums for the Public Employee Benefit Board in 2017 are expected to rise by 5 to 10 percent -- overshooting their budgeted inflation of 3.4 percent, and creating serious doubts about the ability of coordinated care models alone to bring down increases in healthcare costs.

“This is the first year where we have not met it,” conceded Kathy Loretz, the PEBB administrator, at the board’s monthly meeting in Salem on Tuesday.

PEBB had kept inflation to a low figure for three years running, but during the 2017 plan year, that’s expected to end.

Aside from the Providence statewide plan, the projected premium increases for PEBB are not astronomical -- they merely bring Oregon’s health plan for state workers and university employees back down to Earth or at least the United States, which has the presumption of hyperinflation in medical care.

Premiums for Kaiser and Al-Care Health Plan have a proposed 5 percent increase while Moda Health costs for public employees could rise 6.7 percent. Providence has asked for a 5.4 percent increase to administer its coordinated care “Choice” model and a 9.5 percent increase on its traditional statewide plan.

In 2016, more public employees gravitated toward the lower-cost coordinated plans, but the statewide plan remained the most popular option, covering 43 percent of members. State employees pay only 1 percent of their monthly premium if they choose a coordinated plan, but must pay 5 percent of the premium to get the more unfettered statewide Providence plan.

The Oregon Legislature set its 2015-2017 budget for the Oregon Health Authority by counting on PEBB to keep its costs below 3.4 percent. But the proposed premium rates suggest that it will exceed those costs for the last six months of the budget year, and prevent the state from assuming any savings for the 2017-2019 budget.

In December 2014, Gov. John Kitzhaber bullishly predicted budget surpluses starting in 2021, stemming in large part to savings achieved by the Oregon Health Plan and PEBB through coordinated care: “The healthcare changes are clearly the biggest driver in the savings,” he told reporters.

Much of PEBB’s plan for avoiding the federal excise tax on generous health plans in the next decade also comes down to keeping its inflation to 3.4 percent.

The proposed rates are expected to be approved in April, although the PEBB board is considering some minor changes suggested by the health plans to trim costs.

Most of these changes call for reining in the skyrocketing costs in prescription drugs, primarily with methods that increase the consumer’s pocketbook share. The state’s actuarial consultants from Mercer recommended rejecting these suggestions in favor of a more comprehensive plan for dealing with rising drug costs in 2018.

“Pharmacy is a huge driver of costs but they are moving these costs from medical,” noted actuary Aayna Lee, explaining that the high-priced medicines are at least reducing the need for medical interventions. .

The actuaries did still ask that the board consider creating a $100 copayment for specialty drugs for Kaiser members, which would bring them in line with Providence and Kaiser’s other customers, although PEBB board member and labor representative Stacy Chamberlain pushed back on that idea: “That’s a lot of money for some of our members. I don’t support that change.”

The Mercer actuaries also supported a proposal from Providence that raises the copayment for emergency department care from $100 to $250 to discourage people from seeking care for  non-emergencies. If patients are admitted to the hospital, this would fee would be waived.

This proposal also faced pushback from Chamberlain and other labor reps on the board.

Actuary Henry Chen told the board that PEBB saw a 10 percent decrease in utilization when it raised the copayment from $75 to $100, proving it was a deterrent.

“We could get a decrease in utilization without going anywhere near $250,” said Chairman Paul McKenna, who works for SEIU, hinting the board might accept raising it to $125 or $150.

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