PEBB Keeps Inflation Below Peers, but Legislature Demands Lower Costs

As medical inflation spikes back up to 6 to 7 percent a year after a lull linked to the recession, PEBB is having trouble keeping inflation at 3.4 percent, forcing benefit cuts, and calling into question the state’s ability to keep costs down purely through better coordination of care.

Oregon’s Public Employees Benefit Board debated a number of changes to its health package on Tuesday, attempting to keep costs under control without cutting benefits as the age of high medical inflation has returned. PEBB’s Moda, Kaiser and Providence plans cover about 51,000 people, including state and university employees and their families.

The industry standard is 6 to 7 percent medical inflation and PEBB came in at 4.4 percent growth without any changes -- but with a legislative mandate to push down costs another percentage point to 3.4 percent inflation, consultants from Mercer came up with a list of proposals to keep costs down.

Some of the proposed alterations would engineer the plans toward more coordinated care through tactics such as doubling the emergency room copayment from $75 to $150, which penalizes people for defaulting to the most expensive venue of care, thereby encouraging them to use cheaper urgent-care clinics if not their primary care practitioner for non-emergencies.

But other changes that are proposed to keep inflation under 3.4 percent simply trim benefits -- such as increasing the out-of-pocket maximum from $1,000 to $1,500 on Moda Health and Providence Health Plan offerings to adding or increasing copayments to primary care visits, or applying the deductible to those office visits.

Union officials on the PEBB board criticized the current inflation caps as unreasonable given that PEBB has done better than other health plans in the face of medical inflation that is two to three times overall inflation rates. Medical inflation is being driven by big hospital corporations merging and expanding services to increase their market power and pharmaceutical companies with monopolies on patented drugs who have been given unfettered opportunity to set any price they want for new medications.

“The assumption is the whole country is a bunch of slackers and we’re going to magically come in at 3.4 percent,” said Mark Perlman, a philosophy professor and the president of the Western Oregon University Federation of Teachers. “The whole country is trying to do the same things we’re doing and, given all that innovation, people still come in at 6.7 percent.”

Applying these changes would save PEBB $4.9 million in Providence premium costs, as well as $4 million for the Kaiser options and $2.3 million for the more limited Moda offerings. PEBB provides coverage to about 38,200 people through Providence, 9,100 through Kaiser and 3,700 with Moda.

PEBB is also considering increases to member costs for Willamette Dental’s specialty dental services such as orthodontia, dentures and crowns, which could decrease premium costs by $1.1 million. The Oregon Educators Benefit Board finalized similar minor changes to benefits on Monday, adopting a closed drug formulary and sharply raising copayments for specialty dental services.

PEBB board president and SEIU member Shaun Parkman questioned holding PEBB to the same standards as Medicaid, which has much greater ability to set rates at or below costs for medical providers.

Many of the cost-saving changes proposed for 2019 are low-hanging fruit, and PEBB plans will still be more generous than what most private-sector workers are stuck with. But public employees make lower wages than equivalent private-sector workers, on average, leaving good health benefits as one of the best things that the state and public-employee unions have to provide for their members, given the bargaining power that PEBB has with insurers and hospitals. Chipping away at benefits undermines support both for the unions and for the state’s ability to attract the best people for its workforce.

The benefit board analyzed dropping Moda from the benefits package, since Providence can offer its coordinated Choice option in all but three of the state’s most rural counties, and might have more leverage with monopoly hospital systems if it weren’t competing with Moda.

But in the Portland Metro region, this would cause significant disruption, since hospital systems are split in alignment, with coverage at Oregon Health & Science University and the Legacy Health system available only through Moda and not Providence. Conversely, Moda does not contract with Providence hospitals for state employees. Outside the metro area, only two or three hospitals don’t contract with both health insurers.

Consultants from Mercer did recommend switching the Moda coverage from purchasing fully insured plans to self-insuring the plans with PEBB’s reserves and leaving Moda as the administrator,  which they estimate would save $2.1 million the first year, without disrupting members.

Parkman was skeptical of this idea, noting advice from Rep. Mitch Greenlick, D-Portland, the chairman of the Oregon House Health Committee, that self-insured health plans do not necessarily save money over time.

Moda had asked for an 8.1 percent increase over its 2018 rates -- more than double the board’s legislative-mandated cap. But it appears Moda’s rates for the previous two years had been too low, with medical-loss ratios of 105 and 106 percent. This means that Moda had higher costs than what PEBB paid in premiums. In 2015, the last time that Moda made a profit on its PEBB plans, the medical-loss ratio was still 97.5 percent.

Reach Chris Gray at [email protected].

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