Regence Rate Increase Sets the Stage for More Consumer Involvement

Administrator Teresa Miller is determined to get a better handle on the underlying costs of healthcare and give people a window into rate decisions
The Lund Report

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.



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So another double digit increase is good news because the rate requested was decreased? Don't let the State try to convince you that they saved us policy holders a huge amount of money because the 22.1% was not granted. For me personally this means a premium of $628.00 with a $1,500.00 deductible and a 30% co-pay.

Are you on OMIP. Because that won't be a Regence Individual policy. The State of Oregon determines OMIP benefits and premiums, not Regence

Oh my a 12.8 percent hike! That is after raising my rate last year up 20 percent after I turned age 60 this year. Well now, let me see, that means my monthly rate for a private policy would be in the range of 1000.00 per month now if I had the insurance anymore, but I had to give it up my health insurance after the first increase. My heart is breaking for the Regence folks. Tough luck!

Many things will be needed to better put the brakes on health cost increases. Pressure on premiums is one of them. In a "cost plus" environment for nonprofit plans, keeping employers and providers happy takes more priority compared to aggressive efforts at managing prices and use of services. It is not popular to question either. But without aggressive questioning of both, and aggressive pressure for quality improvement and error reduction by market forces, we do not have a good future.

It's a no-brainier. Obviously, if "Other states such as North Dakota don’t face the same double-digit increases sought by Regence. The reason being that Oregon is more competitive (you really mean less competitive), having seven domestic insurers, while North Dakota only has one", then the solution is simple - a "Single Payer System". Nothing new about that. We've been saying it for years. This would imply that it doesn't even have to be a government entity (which I doubt) but if the information given is correct, then the simple change to a single insurance entity would put an end to the absurd rate increases that are making Oregonians homeless, hungry and DEAD! Marc Shapiro

This decision demonstrates the benefits and limitations of rate review. The filing had OSPIRG double checking, a public hearing- the works. And those efforts had an effect, the near 50% haircut is a lot harsher than most recent DCBS decisions. But at the end of the day even with all that exposure, Regence still justified an annual increase around 10 points higher than the CPI. That is medical cost inflation, pure and simple, and a rate review process that doesn’t involve care providers can’t change that. The real good news here is that DCBS is picking up on that fact. Opening the contracts between insurers and providers is a necessary first step towards any kind of cost control regime (single payer included). I hope DCBS can make that happen.

As DCBS Administrator Miller said, we must control the underlying cost of medical care. Agreed. But let's understand what that means and who must be a part of this solution. With the state and federal government serving as the largest combined purchaser of health care services through Medicare, Medicaid (Oregon Health Plan) and for State and Federal employees, they can and do control costs with docs and hospitals using their ability to tell these providers what they will pay. The state and federal government is the "price maker" in these instances for as much as 80% of all residents in some communities. In other words, the government sets the prices that they will pay for a given service or bundle of services. In fact, with the state and federal budgets in such a mess again, doctors and hospitals are having their rates cut significantly through the Medicare and Medicaid programs right now. With that said, however, the price of services is only one side of the equation. The other is utilization. So the question is this: How do we genuinely change our society's expectations around the volume and complexity of the health care services we can reasonably expect to receive? Let's face it, if a procedure or pill has a hill of beans chance to make us or our friends or family members better -- we all want it, we want it now and when we are insured we generally don't care what it costs. We're not paying but a small portion through co-pays and deductibles. Unless we can immediately start to change American's cultural expectations around the provision of healthcare services, we will NOT control utilization thus we will focus only on the price side of the ledger and have a limited impact on total cost. In fact, by doing so we will ultimately threaten the quality of care we have become so accustomed to, by seeking the lowest cost services. I may be willing to shop lowest cost for an oil change on my car, but would not be willing to do so for my dad's total hip replacement. I want to be sure he is getting that procedure done from a team that does a couple hundred of these procedures a year, that uses the best practices with the best outcomes and utilizes only the highest quality parts. And its almost certain that those that meet that criteria will not be in the bottom quartile on price. Yes, the political right will respond that we need medical malpractice reform in light of defensive medicine. That without it, we can never control utilization. And we do. And the political left will say that healthcare is a constitutional right and should be ratified as such. Therefore we should have access to what we need when we need it. And we should...under certain circumstances. But none of that will change the fact that when when my daughter falls off the monkey bars on the playground at school and bangs her head, my first instinct is that I want her in the ambulance headed to the ER. I want a full workup and a CT scan...and I want it now. I am a part of the overall cost problem because i expect immediate access to the best technology and brightest minds. I know that and I know that I must change my ways to be a part of the solution. How about you? Are you willing to do the same? To do with less or to wait a little longer for certain tests or procedures and use only those that have been proven to be the most efficacious vs the first thing our doctor recommends? If not, I fear we may be expecting far too much from all the other players in the healthcare system without putting any skin in the game ourselves, as the ultimate consumer. We've got to stop the vilification of the medical establishment and look in the mirror. We need a way to educate and engage the public in a broad sense around the questions of our own role in the utilization equation and begin the cultural shift immediately or we may never crack this nut they call the healthcare "system."

**** The problem with the 'theory' that by regulating the rates of insurance policies will control the costs of health care is mythical. It only controls the cost of insurance policies. There are currently no regulations on how much a doctor or health care provider can charge for a procedure ***THIS WOULD BE REAL HEALTHCARE REFORM***. The medical providers don't have to hold public hearings to let patients know why and how much they charge the amount they do. Call 4 doctors in your area, tell them you are uninsured and will pay your own bills. Ask for a quote of what an office visit will cost. IF they see you, they will most likely make you pay for everything up front. You will find the costs for procedures vary considerably from practice to practice. How many people hear 'It's okay, you're insurance will pay for it!' ? It's not your insurance company that pays for it. It's you, through your premiums...