More than 25,000 Oregonians in the Salem area are in limbo over where they can obtain affordable care after financial brawling led to a split between their regional health system and commercial health insurance giant Regence Blue Cross Blue Shield.
Marked by finger-pointing over who’s to blame for disrupting patients’ care, disputes like the one in Salem keep increasing, leaving patients and consumers caught in the middle.
The power struggles, pressure tactics and public brinksmanship are about money — specifically the massive wealth that Regence, other big Oregon commercial health insurers and their national counterparts have quietly accumulated during and after the pandemic.
In a nutshell, hospitals and other providers want more of it.
A review by The Lund Report found that Oregon’s largest commercial health insurance companies have reaped big profits in the last few years from premiums and investment returns. As a result, they sit on huge, often record-breaking investment coffers.
“We could not in good faith agree to Salem Health’s unrealistic demands.”
Salem Health has publicly and repeatedly pointed out that Regence rang up nearly $500 million in profits in Oregon from 2020 to 2023.
Stretch the time period out, and Regence’s operating profits are even bigger: $591 million from 2019 to the third quarter of 2024, the latest numbers available.
Regence channeled much of that into its investment portfolio of stocks and bonds, which now stands at $1.7 billion, nearly double what it was at the start of 2019, before the pandemic, Regence’s financial filings show
Salem Health wanted Regence – Oregon’s largest commercial health care insurer -- to dramatically increase what it paid for the care that tens of thousands of Regence members receive at the Marion County hospital system.
Regence said no. It struck Salem Health from its coveted in-network provider list, forcing many Regence members to pay more out of pocket if they want care at Salem Health.
Both sides in the money fight are openly antagonistic, a marked break from the customarily secretive haggling between hospitals and health insurers over reimbursement rates.
Regence argued that to meet Salem Health’s financial ultimatum, the insurer would have to steeply hike its monthly premiums.
“We could not in good faith agree to Salem Health’s unrealistic demands,” Regence spokesman Dean Johnson told The Lund Report.
“I think a question that the public should be asking health insurers, large health systems, hospitals and physician groups is, ‘How much is enough?’”
Pandemic sparked profits
It’s not just Regence. Oregon’s other large commercial health insurance companies have also reaped big profits in the last few years from premiums and from investment returns. They, too, sit on huge, often record-breaking, investment coffers.
The reasons are simple: The pandemic dampened most people’s use of health care as hospitals and medical clinics restricted access. That meant fewer claims than anticipated. Yet members kept paying ever-increasing premiums. Plus, the long stock market boom swelled the value of insurers’ stock and bond portfolios.
Meanwhile, with federal pandemic subsidies long over, Oregon hospitals are pleading poverty. They say they are losing money as they shell out sharply higher pay to doctors, unionized nurses and other workers. To fill the gap, they want higher insurance payments, including from commercial insurers like Regence.
For William Kramer, a senior advisor for health policy at the Purchaser Business Group on Health who sits on the Oregon Heath Policy Board, the high levels of commercial health insurance reserves reflect an issue he sees across the health care system.
“I think a question that the public should be asking health insurers, large health systems, hospitals and physician groups is, ‘How much is enough?’” said Kramer, who also serves on the Congressional Budget Office’s Panel of Health Advisers.
Pandemic profits, Kramer added, “allowed [commercial health insurers] to build up reserves far in excess of what their minimum requirements are and far in excess of what's needed for them to be financially healthy. The question is, why do they continue to raise premiums at a time when they are sitting on these massive reserves?”
So it is that insurers’ massive reserves are now creeping into the public eye as a matter of debate, years after they began their remarkable surge.
Vital service
The state’s largest commercial health insurers – Regence, PacificSource Health Plan, Providence Health Plan and others - are central to Oregon’s health care system. Mostly nonprofits, they provide coverage to about 1.6 million residents – 40% of the population. They do so almost entirely through large-employer plans, which cover employees at big private-sector companies, local and state governments, school districts and the like. Regence alone covers 400,000-plus Oregonians this way.
These commercial health insurers are legally and financially separate from other health insurers that provide taxpayer-funded Oregon Health Plan coverage for low-income residents and Medicare coverage for the elderly.
Unlike OHP and Medicare insurers, commercial health insurers are only lightly regulated.
There are few curbs on the profits or investment portfolios they amass. No regulation says Regence’s $591 million in operating profits and a $1.7 billion investment portfolio are too much.
The field is largely opaque to the Oregonians who, along with their employers, pay the premiums. The multi-year contracts between insurers and their in-network providers that spell out how much the insurer pays per procedure are hidden from the public. So, too, are the contracts between insurers and the large-group employers they cover.
When it comes to large-employer-based coverage, there’s no public disclosure of the premium rate increases paid each year by employers and their workers. Nor are premiums reviewed by regulators, in contrast to the tiny sector of the market where individuals and small businesses buy their own coverage.
Workers who have job-based insurance have little choice but to accept whatever their employer manages to negotiate with the insurer. Many complain that their premium contributions have grown way too high — even as plan benefits have declined.
“We fully understand our commercial and individual customers are facing economic challenges and we remain committed to being as cost-effective as possible while continuing to provide … high-quality care.”
Affordability a top concern
Commercial insurers insist they are sticking up for consumers and want to curb rising health care costs, as the state is asking them to do.
Unhappy at being scapegoated, Regence says that Salem Health’s demands would have forced Regence to pay roughly 40% more to the hospital system to cover member care over the next two years.
“Affordability is one of the top concerns we hear from our customers and members,” says spokesman Johnson. “Our members and the employer groups who pay to provide health care to their employees cannot afford a 40% increase in what they pay to access Salem Health providers.”
But Salem Health representatives said they simply asked Regence to pay the same rates that other insurers have agreed to. And they point to Regence’s premium hikes over the years. Between 2020 and 2023, Regence hiked its rates for small businesses by 47% and 33% for individuals, its filings show.
Regence imposed those increases “when many patients and their families were battling financial, economic and physical worries,” according to a statement issued by Salem Health. Regence’s reimbursement rates to Salem Health “have not increased anywhere close to those numbers.”
But while health insurers cite costs when they decline to spend from their large reserves, the decision to sit on those reserves rather than spend them has a direct impact on the availability of care — including primary care, which studies indicate saves money, addresses health inequities and cuts system spending overall.
Why are health insurers “spending so little on primary care?” asked Kramer, the health purchaser advisor. “There is a serious problem of access to primary care physicians and other providers. A lot of that is due to low payment levels, not just in Medicaid and Medicare, but in [the] commercial market as well. There's a desperate need to increase investment in primary care, and health plans can and should play a major role in that.”
Nationwide conflict
The struggle between Salem Health and Regence is the latest sign of hospital leaders’ resentment of insurers’ clout – in Oregon and nationwide.
Health insurers have merged and grown across the country, a trend that experts say leads to higher costs for consumers and lower reimbursements for providers.
Hospitals and health systems, meanwhile, are part of the same merger craze, as hospitals try to increase their clout to extract higher payments from insurers. One reason Oregon Health & Science University in Portland wants to absorb the six-hospital Portland-based Legacy Health system is to create a dominant regional chain that will have more leverage over insurers to demand higher reimbursements, observers say.
All this consolidation helps explain why the contract disputes in Salem, the Portland area and elsewhere in the country are happening much more often these days — and with bigger impacts, some say.
Regence is often the target of Oregon hospital leaders’ ire.
Last spring, Legacy disclosed it had been trying for months to get higher reimbursements from Regence for the roughly 200,000 Regence members who use the system. In late 2023, a similar dispute arose between the Providence hospital network and Regence.
“We have seen increased friction between insurers and providers since the pandemic,” Becky Hultberg, CEO of the Hospital Association of Oregon trade group, told The Lund Report. “When there are resources going into [insurance company investment reserves], they are not available for patient care,” she said. “Where we have concerns is whether resources are being appropriately deployed to help patients.”
Trinity Health, a Michigan-based multi-state nonprofit hospital system that owns St. Alphonsus Medical Center in Baker City, in 2023 purchased a website domain healthcomesfirst.org just to attack insurers.
“Patients, not profits,” it reads, and complains of “inadequate payment from health insurance companies, which is making it difficult to provide access to quality care patients deserve.”
State sets minimums for reserves
The Oregon Department of Consumer and Business Services sets minimum financial cushions that commercial health insurers must hold in reserve.
Based on their run of profits over the last five years, Regence and the other major Oregon commercial health insurers have accumulated cushions that are double, triple or even quadruple state-mandated levels, according to The Lund Report’s analysis of insurer filings with the National Association of Insurance Commissioners.
Portland-based Regence, a standalone nonprofit arm of the Cambia group, is a financial powerhouse. Its assets consist almost entirely of its investment portfolio of $1.7 billion. Its net worth – all assets minus all liabilities such as debts and pending claims – is $1.33 billion. That’s up from $776 million at the start of 2019, according to its filings.
Two other major Oregon-based health insurers also hold record or near-record net worths following their pandemic surge: Portland-based nonprofit Providence Health Plan, with about 300,000 members in the state, and Springfield-based nonprofit PacificSource Health Plan, with about 150,000 members in Oregon.
Providence Health Plans’ net worth stood at $725 million at the end of September, up 30% from before the pandemic, the filings show. PacificSource’s stood at $477 million at the end of September, more than double its pre-pandemic level.
Here’s a rundown of the finances of Oregon’s major commercial health insurers as of September:
REGENCE BLUE CROSS BLUE SHIELD OF OREGON
- Nonprofit covers nearly 500,000 Oregonians, mostly on commercial plans, some on Medicare.
- Operating profits 2019 to third quarter, 2024: $591 million.
- Net worth: $1.33 billion.
- Cushion required by state regulators: less than a third of their worth, or about $400 million.
PROVIDENCE HEALTH PLAN
- Nonprofit standalone arm of the larger Washington-based Providence Health & Service health system, covers roughly 300,000 Oregon members in large-employer plans, plus some other forms of health insurance.
- Operating profits from 2019 to the third quarter of 2024: $127 million. Recorded big profits during the pandemic followed by operating losses from 2022 into the third quarter of 2024.
- Net worth: $725 million as of last September, up from $555 million at the start of 2019.
- Cushion required by state regulators: about $172 million, less than a quarter of their net worth.
PACIFICSOURCE HEALTH PLAN
- Springfield-based health insurer covers about 150,000 Oregon members. Other PacificSource companies manage PacificSource’s Medicaid and Medicare plans.
- Operating profits: A modest $58 million from 2019 to third quarter of 2024. Its investment portfolio, however, gained nearly $200 million
- Net worth: $465 million as of September, up from $208 million at the start of 2019.
- Cushion required by regulators: about a third of what it had.
KAISER PERMANENTE HEALTH PLAN OF THE NORTHWEST
- Kaiser covers about 400,000 large-employer commercial and other members in Oregon and Southwest Washington. The insurer is a closely integrated part of the much larger nonprofit Kaiser health care system, which includes Kaiser hospitals and clinics.
- Operating profits 2029-third quarter 2024: $855 million,
- Net worth: $979 million in the third of 2024, up from $643 million at the start of 2019.
- Cushion required by regulators: about $200 million, or less than a quarter of what it had.
MODA HEALTH PLAN
- Portland-based plan, a standalone part of the four-state for-profit Moda group, covers about 200,000 members in Oregon through large employer plans, as well as some others.
- Operating profit, 2019 through the first quarter of 2024: Essentially break even.
- Net worth: $106 million as of last September, down from $131 million at the start of 2019.
- Cushion required by regulators: about half that.
Insurers defend assets
PacificSource declined a Lund Report request for comment.
Johnson, the Regence spokesperson, said its assets assure that Regence will keep its commitment “to pay medical and pharmacy claims for members in good times and bad.” The insurer’s net worth amounts to “about $2,604 per member in Oregon – that’s a modest amount given the average cost to fix a broken leg is $7,500. One emergency room visit for every member could wipe out our (net worth).”
The Kaiser Permanente plan’s net worth is “consistent” with most other health plans, said spokesperson Debbie Karman. The insurer pays toward “funding for construction and maintenance of medical office buildings, technology and medical equipment investments, and for the pay and benefits for our frontline caregivers,” she added. “We fully understand our commercial and individual customers are facing economic challenges and we remain committed to being as cost-effective as possible while continuing to provide … high-quality care.”
Providence Health Plan’s net worth is “appropriate” for its size and its status as a nonprofit, Lina Saadzoi, the plan’s Chief Financial Officer, told The Lund Report. Reducing premiums is not in the cards.
“When insurance companies return rebates to members, it is often because they have overestimated their needs and collected an incorrect amount of premium upfront. Providence Health Plan is committed to being good stewards of membership dollars and has not needed to return premiums via rebates to members in recent history,” Saadzoi said.
“The (health care) system is in large part subsidized, if you will, through high commercial rates. These are much higher than they should be.”
Singled out, insurers say
Commercial health insurers also say they’re being unfairly singled out. They say the real culprits are Medicaid and Medicare, which pay hospitals and other providers far less per procedure.
Commercial health insurance companies “are making payments (to hospitals) that are well above costs in most situations, and are helping to subsidize inadequate governmental reimbursement,” says a report by Ohio hospital consultant Cleverly and Associates.
Big health insurance companies “are not realizing excessive profits and are not the primary villain for low hospital profitability,” the report said.
Regence, meanwhile, uses its website to portray itself as a champion of consumers. Regence’s Johnson said, “Hospitals are the largest driver of U.S. health care spending, charging [commercial] health plans more than two times what they charge Medicare for the same services.”
Critics say Medicare reimbursements have not grown at the same rate as private health insurers’ reimbursements. Meanwhile, reimbursements under Medicaid, which funds the Oregon Health Plan, have grown at an even slower rate than Medicare’s already slow rate.
As a result, hospitals need high reimbursement rates from commercial health insurers.
Only about 31% of Oregon hospital revenues come from commercial health insurance, and the rest comes from OHP and Medicare, Hultberg, the hospital group’s leader, said.
“The challenge is when 68% of your patients have insurance that doesn’t cover the cost of care,” she said.
Dr. John Santa, a former member of the Oregon Health Policy Board, which sets OHA policy, told The Lund Report that “The (health care) system is in large part subsidized, if you will, through high commercial rates. These are much higher than they should be.”
With commercial health insurance company profits and premiums so high, “my hope is more people are waking up to how poorly a market-based system is designed,” Santa told The Lund Report. “Insurance companies have become successful at achieving profits on administrative services.”
Worried in part by high commercial health insurance premiums, Oregon legislators created the Universal Health Plan Governance Board to recommend by 2026 how to ensure universal access while establishing a public corporation to administer it.
“Something is incredibly wrong with this system. We are both in good health…. Very, very wrong.”
Scant attention paid
There are no strict limits on how much of a surplus is too much to keep in reserve.
Consumer groups and state regulators used to regularly criticize what they considered excessive reserves amassed by health insurers. Then came the federal Affordable Care Act approved in 2010, which required commercial health insurers to spend a certain percentage of their revenues on patient care — the goal being that insurers didn’t use too high a portion of the premiums they collected to pay for salaries, profits and build hefty reserves.
Yet Oregon’s commercial health insurers were able to meet those benchmarks and still pile up big profits during and after the pandemic. And some consumer advocates say despite the federal law, regulators should scrutinize surplus.
State law gives the Oregon Department of Consumer and Business Services the explicit legal authority to review the size of surplus and reserves when deciding whether to approve rate hikes in the small business health insurance market as well as the individual market, where people who don’t have government or job-based coverage can buy their own plans.
And Oregon used to use that authority, sparking copycat legislation elsewhere.
These days, however, the agency says it doesn’t feel it has the authority to reduce rates beyond what a commercial health insurer shows it needs. Nor, despite the statute granting it authority, has the agency adopted rules to guide how excess reserves could be evaluated.
State Insurance Commissioner Andrew Stolfi, head of DCBS, declined requests for interviews. Instead, a spokesperson issued a statement:
“Surplus is an important financial tool as it provides a buffer for insurers who suffer losses in excess of the amount they have estimated and set aside (or reserved) for those losses … Having a healthy surplus allows an insurer to weather tough years, which is important to us as well as to policyholders.”
That’s in the individual and small business health insurance market.
But when it comes to large-employer-based coverage, no state or federal entity caps or controls the premiums.
Meanwhile, workers face ever higher premiums.
Oregon’s commercial health insurers have hiked their premiums briskly in recent years, and employers have shifted ever more of that burden onto workers, Oregon Health Authority studies have found.
Frustration is rife
The high costs have embittered workers, as well as retirees who remain on their former employers’ insurance.
Eugene resident Lynn Lary, a former school district worker, buys through her former employer to cover herself and her husband. The premium is over $1,600 a month, Lary, 58, complained to the OHA’s Sustainable Health Care Cost Growth Target program.
The premium consumes 40% of her monthly school pension, “and that does not include co-pays and deductibles,” Lary wrote in public comments to the program. “Something is incredibly wrong with this system. We are both in good health…. Very, very wrong.”
In 2002, an Oregon commercial health insurance family plan typically required an annual premium of about $12,000, with the employer paying the whole cost, said Maribeth Healey, former executive director of the advocacy group Health Care for All Oregon.
Today, that has ballooned to $20,000 or more, and employers have shifted about 30% of the cost onto employees, she said. A typical worker at a large employer in Oregon is “paying thousands of dollars out of pocket for health coverage, including premiums, deductibles, copays,” she said.
“Having a healthy surplus allows an insurer to weather tough years, which is important to us as well as to policyholders.”
Santa, the former OHA official, said one plus of the commercial health insurance sector in Oregon is that it consists largely of nonprofit Oregon-based companies. These entities don’t pay out dividends to shareholders. Instead, when premium and investment portfolio revenues far outstrip outlays to providers, the insurers stash the money into investment portfolios of cash, bonds and stocks.
“The money hasn’t disappeared into the pockets of for-profits that have shareholders,” Santa said.
But that’s cold comfort to premium-paying members and to hospital leaders.
Hultberg, the hospital industry CEO, said hospitals are frustrated by the clout Oregon commercial health insurers wield.
“We are seeing increased denials of payment, increases in onerous requirements around prior authorization and other administrative burdens, that are really tilting the balance of power toward insurers. That’s a significant problem,” she said.
Kramer, the advisor to employer purchasers of commercial health insurance and a former Kaiser Permanente executive, said people need to be aware of how escalating costs are affecting their lives, creating an affordability crisis, even as insurers accumulate stockpiles of money that could be used to address problems of access, quality and equity.
He said part of the problem is that people have “given up.”
So they don’t comment on proposed rate hikes submitted to the state publicly, and instead just accept the increases — even as they suffer.
“The level of medical debt is staggering. The number of people who have delayed or avoided necessary medical care altogether because of concerns about the cost is staggering,” he said. “It's an ongoing crisis and it's been growing for decades. One of the reasons it doesn't get attention every day is because it exists every day; it's not like a hurricane that comes in and destroys everything and then goes away, or a big flood or a forest fire … and that's one of the reasons it doesn't get the attention of policy makers,” he added.
“The bottom line is, health insurers and large health systems and hospitals have enormous amounts of money they're sitting on that they could be spending every year to improve care, to improve access and reduce costs. And most of them are not.”
Christian Wihtol can be reached on LinkedIn. Nick Budnick can be reached at [email protected].
This quote from the Oregon Insurance Division proves how ridiculously the system is being 'monitored': “Having a healthy surplus allows an insurer to weather tough years, which is important to us as well as to policyholders.” How much is enough? Our small business (25+27 employees) has their medical insurance premiums raised in double digits every single year. We cannot afford to continue to pay these increases so we end up with higher deductible plans - that still cost more than our plan the previous year. More and more of the costs are forced on our employees as patients while we continue to pay increased rates. We have NO IDEA how much is actually being spent by our insurer on our members because they have NO REQUIREMENT to tell us. It's all smoke and mirrors with OHA blessing it every single year they allow insurance companies to raise their rates well beyond what consumers can afford to pay. They certainly don't increase what they pay providers who actually CARE for their members....where's the money going? Right into their own pockets with no one to stop it. Who can we call on to protect patients from this? Why is it providers are always called the 'bad guy' for 'charging too much' when they aren't the ones sucking the life out of the system?