Health Net Rate Hike Not Justified

OSPIRG Foundation analysis finds problems with the insurer’s rate filing

OSPIRG Foundation

Health Net’s proposal to raise rates on small businesses doesn’t make the grade, according to a new OSPIRG Foundation analysis released today.

If approved, the rate increase would impact 38,492 Oregonians with coverage through a small business employer. Of those enrollees, 14,298 would see rates rise between 11% and 30%. However, it would be difficult for a small business owner to understand from the filing whether they would see these high increases, and why.

“These costs are tough on Oregon families and small businesses,” said Laura Etherton, OSPIRG Foundation’s health care advocate. “We found that premiums for a medium-level family plan could exceed $16,800 per year, that’s over 26% of Oregon median family household income.”

Key findings of OSPIRG’s analysis:

Health Net’s projected 9.2% medical trend appears inaccurate and excessive. The insurer seems to have double counted a specific cost factor, and did not adequately justify its estimates for increased utilization of medical services or drug cost increases.

The insurer’s projected 3.7% underwriting profit – $6.1 million – may be underestimated. If medical costs come in lower than projections, more of premium would go to profit than projected. This very dynamic played out last year, when Health Net’s profit came in at nearly six times the projected level.

The Oregon Insurance Division should examine whether Health Net’s rationale for its profit target is appropriate. The insurer cites the fact that its surplus level is lower than that of other insurers as justification for the proposed underwriting profit target of 3.7%. But this lower surplus level is at least partly due to the fact that Health Net has paid stockholder dividends of $22.3 million to its parent company over the last two years.

When it comes to reducing costs and improving the quality of care, Health Net appears to be leaving key strategies on the table. With rising costs making health insurance unaffordable for many small businesses and their employees, Oregon needs all insurance companies to redouble their efforts to contain costs – not by raising deductibles and cutting care – but by cutting waste and focusing on prevention and other proven strategies that keep patients healthier.

The Insurance Division of the Oregon Department of Consumer and Business Services (DCBS) is expected to make its decision on the pending Health Net rate request this month.  A copy of the rate filing is available on the Insurance Division’s rate review website.

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 pending rate increases. For more information, visit


OSPIRG Foundation is a non-profit, non-partisan consumer organization. The organization’s Health Insurance Rate Watch project provides analysis and comments of health insurance rate filings from a consumer perspective. The project’s advisory committee includes small business and consumer experts such as AARP-Oregon and Consumers Union.

The project described is supported by Grant Number IPRPR0057A from Department of Health and Human Services Office of Consumer Information and Insurance Oversight. Its contents are solely the responsibility of the authors and do not necessarily represent the official views of the Department of Health and Human Services Office of Consumer Information and Insurance Oversight.