Report: Health Insurance Rate Watch Project

Comments on PacificSource Health Plan's proposal to raise individual health insurance rates

Released by: OSPIRG Foundation

Executive Summary                                                                                            

PacificSource Health Plan members with individual health insurance plans will see rate hikes of 42.7% on average, and as high as 60.4%, if the premium rate hike proposed by PacificSource goes forward.

PacificSource’s increase is the largest proposed by a major health insurance carrier in Oregon’s individual market since 2010, when new rules heightening scrutiny of health insurance rates were implemented.

The main reason given for this increase is the insurer’s claim that the health status of the customers it enrolled in 2014 was much worse than anticipated, leading to higher costs and financial losses for the insurer. The insurer also projects that medical costs will rise by 5.5%, and that prescription drug costs will rise by 16%.

After analysis of PacificSource’s initial filing and the supplemental information provided, we acknowledge some of the factors that concern PacificSource and that prompted the rate hike proposal. However, on balance, we are concerned that the insurer’s specific proposal may be overreacting to short-term market fluctuations that are still playing themselves out, while also underestimating the company’s ability to take a longer term approach, at significant cost for many Oregon families and individuals. This, plus our finding that the insurer has not provided sufficient evidence to justify some elements of the case for a rate hike, makes us concerned that the proposed rate increase is not entirely justified.

Key Findings:

  • A 42.7% increase would have a significant negative impact on affected Oregonians, representing more than $2,000 in additional premium costs per year for many PacificSource members. A 42.7% increase would be nearly 24 times the rate of inflation in the broader economy and more than 16 times the rate of inflation in the cost of medical services.[1] Such a large increase would be highly disruptive for consumers and does not seem consistent with PacificSource’s stated intent to “maintain rate stability and prevent future excessive rate increases for this line of business.”
  • Despite financial losses in 2014, PacificSource’s financial position remains strong. PacificSource is also proposing to add to its surplus while also proposing one of the largest rate increases in recent Oregon history. The insurer’s risk-based capital ratio, a key measure of solvency, improved by 3% in 2014[2] despite reported losses of 2% of total premium income. This means that the insurer could take a more moderate approach to increasing rates to avoid a large, disruptive rate increase in 2016, and that it may be appropriate for its surplus margin to be reduced or removed to provide some premiums relief for PacificSource members.
  • PacificSource’s 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 may be higher than PacificSource initially projected, there are reasons to believe that these costs will go down in future years. PacificSource acknowledges this to some degree, but it is possible that PacificSource is 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.
  • PacificSource’s projection that prescription drug costs will increase by 16% is higher than many of their competitors, and insufficiently supported. The insurer attributes this increase to a spike in specialty drug costs, but does not provide sufficient explanation for this effect, especially given the company’s statement that it had very limited exposure to the high cost of new drugs for Hepatitis C., which is one of the most frequently-cited recent drivers of prescription drug costs.
  • It is unclear from the information provided whether PacificSource is sufficiently adjusting its 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. PacificSource claims that these savings are incorporated into its medical cost trend projections but does not provide a specific estimate of the 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.
  • When it comes to reducing costs and improving the quality of care, it is not clear that PacificSource is doing all it can. Metrics submitted in the filing indicate that PacificSource’s ER costs and utilization for 2014 were much higher than the previous year, and inpatient hospital costs doubled on a per member, per month basis. While this is consistent with the insurer’s claim that 2014 costs were higher than expected, it is unclear from the information submitted in the filing whether the insurer is doing enough to keep its members healthy and out hospitals and emergency departments. It is also unclear whether PacificSource is adequately taking into account the projected savings impact of cost containment efforts in their rate calculation.[3] Further inquiry should be made to ensure PacificSource is doing everything possible to cut waste and improve quality of care, and pass the savings on to their members.  

Before deciding to approve, deny or modify this rate request, we urge the Oregon Department of Consumer and Business Services (DCBS) to scrutinize the issues raised here, require PacificSource to provide all documentation necessary to evaluate their proposal, and to implement a concrete, achievable plan to contain costs for Oregon individuals and families.
 
NOTES

[1] Source: US Department of Labor, April 2015 CPI report, http://www.bls.gov/news.release/cpi.nr0.htm 

[2] The RBC ratio went from 381.7% in 2013 to 394.3% in 2014.

[3] For example, in response to OSPIRG Foundation questions, PacificSource states that they project a total savings of $2 million across its commercial membership during calendar year 2015 from new utilization management strategies. It is not clear from the information provided if and how these savings are reflected in the proposed rates.

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