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Comments on Providence Health Plan's proposal to raise individual health insurance rates
Providence Health Plan’s 105,406 members with individual health insurance plans will see rate hikes of 29.6% on average, and as high as 72.3%, if the premium rate hike proposed by Providence goes forward.
Providence’s reasons for the increase include a projected 6.1% increase in the cost of providing medical services, 8.8% due to the end of federal and state reinsurance programs, 5% due to a sicker customer base, 3.7% due to less success in managing the cost of care than expected, and 2.5% for a higher targeted profit.
After analysis of Providence’s initial filing and the supplemental information provided, we acknowledge some of the factors that concern Providence and that prompted the rate hike proposal. Providence projects it will spend $1.15 on health care for its Individual members for every premium dollar received in 2015, and sustain a 38% loss on its Individual market business. In such a situation, it is not unreasonable for an insurer to seek a rate increase.
However, we are deeply concerned about the impact of this large increase on Oregon consumers, and on the Oregon Individual market. While ongoing insurer financial losses are not sustainable for the long term, it is also unsustainable to continue hiking rates without addressing the drivers of health care cost growth.
We urge the Oregon Department of Consumer and Business Services (DCBS) to scrutinize the filing closely. We are concerned that, in some areas, Providence has not provided enough information to justify some elements of their case for a rate hike.
At the same time, we urge DCBS and Oregon policymakers to take stronger steps to address the underlying drivers of health care costs and instability in the Individual market. Action is urgently needed to ensure that Oregon consumers are not subjected to unreasonable and unsustainable rate increases going forward, and that they are not being asked to foot the bill for waste, estimated to represent a third or more of every dollar we spend on health care.
- It is unclear from the information provided whether Providence is sufficiently adjusting its cost projections to reflect reductions in costs to Oregon hospitals. Public filings from Oregon hospitals continue to demonstrate that factors including record-low levels of uncompensated care are contributing to large hospital profit margins across the state. Providence Health and Services, Providence Health Plan’s provider affiliate, has accumulated nearly $6 billion in cash reserves. In light of these surpluses, it seems reasonable for insurers to expect commensurate savings on hospital costs. Providence claims that savings from reductions in uncompensated care are incorporated into its medical cost trend projections but does not provide a specific estimate of the savings.
- Providence’s cost projections for covering their current members and future enrollees may be overestimated. The costs of providing health care services to Oregonians who signed up in 2014 and 2015 have been higher than Oregon insurers initially projected, but there are reasons to doubt whether these trends will continue. Many uninsured young Oregonians remain eligible for tax credits under the Affordable Care Act, and may be motivated to enroll by improved outreach efforts and/or increases in the ACA’s tax penalty for going without insurance. Moreover, Providence states in its own filing that large rate increases are likely to worsen these trends, not alleviate them, suggesting that a strategy of rate hikes may be self-defeating.
- Providence’s medical and administrative cost trend projections may be excessive. While Providence projects a 6.1% increase in the cost of health care services, historical trend data presented by Providence in the filing shows a downward trend in medical costs of around -4% a year. Providence has not explained why it projects an upward trend when its own experience suggests a downward trend. Providence has also not supported its proposed +26% increase in general administrative costs.
- A 29.6% increase would have a significant negative impact on affected Oregonians, representing more than $2,000 in additional premium costs per year for many Providence members. Such a large increase would be highly disruptive for consumers and does not seem consistent with Providence’s stated intent to “maintain reasonable rate stability over an extended period of time.” While many Providence members can avoid or mitigate this impact via the Affordable Care Act’s tax credits, or by switching coverage, such a large increase will still be disruptive for many Oregon families.
- Providence has chosen to stop offering coverage in Central, Southern and most of Eastern Oregon. This will have a disruptive effect not only for current Providence members living in these areas, but for the competitive landscape in these regions. With fewer insurance companies competing for members in these places, the remaining insurers will have less incentive to keep down costs going forward. While this move may cut costs for Providence, since these areas may be higher cost for insurers, we urge DCBS to consider the impact of this decision and develop a strategy to ensure sustainable access to reasonably-priced health coverage in all parts of the state.
- Despite financial losses in 2015, Providence’s financial position remains stable. Providence is also proposing to add to its surplus, and is actually seeking a higher profit margin than in prior filings, while also proposing one of the largest rate increases in recent Oregon history. While it is appropriate for Providence to take steps to avoid additional large losses next year, it may also be appropriate for its profit margin to be reduced or removed to provide some premium relief for Providence members.
- When it comes to reducing costs and improving the quality of care, it is unclear whether Providence is doing all it can. Providence has many cost containment and quality improvement programs in place that may be worthwhile, but the insurer is also proposing to raise rates based in part on failing to realize savings from medical management programs, raising questions about the carrier’s programs and commitments in this key area.
 OSPIRG Foundation’s analysis is based upon the information currently available. OSPIRG Foundation reserves the right to submit further comments if additional relevant information becomes available.
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