Some proposed health insurance rate hikes may be overreacting to short-term market fluctuations

New OSPIRG Foundation analysis of 2016 rates proposed by four Oregon insurers—LifeWise, Moda, PacificSource and Regence—identifies problems and gaps in the insurers’ filings, and calls for increased scrutiny of insurers’ efforts to cut waste and improve quality of care.

Oregon health insurance companies have proposed their premium rates for next year, and according to new OSPIRG Foundation analyses released today, many have not adequately justified their prices.

Close scrutiny of rate hike proposals is important to make sure consumers are not paying for unnecessary costs. For next year, Oregon’s major insurers are proposing rate changes ranging from a 1.95% decrease from Kaiser to a 42.7% increase from PacificSource for individuals and families purchasing coverage on their own.

“With some insurers proposing the largest rate hikes in recent memory, it is more critical than ever to scrutinize the basis for these rates,” said Jesse O’Brien, OSPIRG Foundation Health Care Advocate. “We acknowledge some of the factors that are prompting these rate proposals, but the more we dig into the insurers’ justifications, the more concerned we are that the insurer’s proposals may be overreacting to short-term market fluctuations.”

“We also remain concerned that Oregon’s insurers aren’t doing all they can to cut waste,” said O’Brien. “With study after study showing that one-third of health care spending is waste, we can’t afford anything but a full-court press for more effective use of our health care dollars.”

OSPIRG Foundation conducted an in-depth analysis of rate proposals from four of Oregon’s top insurers: LifeWise, Moda, PacificSource and Regence.

Key findings of OSPIRG Foundation’s analysis:

  • Many insurers’ cost projections for covering their current members and future enrollees may be overestimated. While the cost of covering the new members that enrolled in health coverage in 2014 has been higher than a number of insurers initially projected, there are reasons to believe that these costs will go down in future years. Most Oregon insurers acknowledge this to some degree, but it is possible that insurers are prematurely overcorrecting before it is widely understood how the market will develop. Many of the Oregonians who signed up for coverage in 2014 had been unable to access coverage in prior years due to pre-existing medical conditions. The cost of providing medical services to individuals who have been blocked from coverage for many years is likely to go down in future years as those conditions require fewer acute interventions and become more manageable with ongoing treatment. These costs are also likely to be offset by more Oregonians purchasing coverage in 2015 and 2016.
  • Despite financial losses for some in 2014, the financial position of Oregon’s major insurers remains sound. This means that Oregon insurers could take a more moderate approach to increasing rates to avoid large, disruptive rate increases in 2016. Some insurers, including PacificSource, Moda andRegence, are proposing to add to their surpluses while also proposing some of the largest rate increases in recent Oregon history.
  • Some insurers are still failing to adjust cost projections to reflect reductions in “bad debt” from the Affordable Care Act’s expansion of coverage. Recent public filings from Oregon hospitals demonstrate record-low levels of uncompensated care resulting in large hospital profit margins across the state, and these cost savings should be shared with consumers through lower hospital costs and lower premiums. Last year, Oregon regulators cut back many rate proposals to ensure that they appropriately included these reductions, but this year, a number of insurers, including Regence and LifeWise, have again failed to account for these savings. With many Oregon hospitals posting margins of 10% or more, the potential savings are dramatic, but consumers will not benefit unless the savings are appropriately incorporated into premium rates.
  • Some Oregon insurers appear to be overstating medical cost trends. With a number of national studies demonstrating a slowdown in health care cost growth in recent years, projections as high as 8.8% (from Regence) merit close scrutiny.
  • Oregon insurers do not appear to be doing all they can to reduce costs and improve quality of care. For the second year in a row, every Oregon insurer submitted hard data on health care quality, cost and utilization as part of the rate filing process. These metrics represent a step forward for transparency, and they raise important questions for some Oregon insurers. For example, PacificSource and LifeWise are paying more for emergency room visits and inpatient hospital stays, yet they are both proposing big rate increases without demonstrating that they are doing all they can to reduce these costs and help keep their members out of the hospital.

The Insurance Division of the Oregon Department of Consumer and Business Services (DCBS) is expected to make its decision on the pending rate requests by July 1. All rate filing documentation is available on the Insurance Division’s rate review website, www.oregonhealthrates.org  

Background on Oregon’s health insurance rate review program 

In 2010, new rules went into effect strengthening the standards that health insurance companies must meet before raising premiums. Insurers must justify rate hikes in writing, showing that they are not excessive and explaining how the insurer is working to reduce costs. All rate filings are public information, available online, and open to public comment. The Oregon Insurance Division evaluates these justifications, and must take public input into consideration. In 2011, the Insurance Division began to hold public hearings on significant rate increases.

Since these changes have taken effect, the Oregon Insurance Division has significantly stepped up their scrutiny of health insurers’ rate hike requests. Since 2010, it made cuts to a majority of requests, cutting over $179 million in waste and unjustified costs from consumers’ and small businesses’ premiums. 

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OSPIRG Foundation is a non-profit, non-partisan statewide consumer organization. Please visit us at www.ospirgfoundation.org

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