Providence’s proposed 22.7% rate hike merits close scrutiny, underscores stakes for consumers in health reform debate

New OSPIRG Foundation analysis of 2018 rates proposed by Providence Health Plan identifies problems and gaps in the insurer’s filing, and calls for increased scrutiny of efforts to cut waste and improve quality of care.

OSPIRG Foundation

Providence Health Plan has proposed a rate hike of 22.7% on average—as high as 68.3% for some—on over 104,000 Oregonians. According to a new OSPIRG Foundation analysis released today, this rate hike proposal highlights not only the need for close scrutiny of health insurance rates, but also the high stakes for consumers in the federal health reform debate and the urgency of action to contain the rising cost of health care services.

“This is the second year in a row Providence has proposed a big double-digit rate hike on over 100,000 Oregonians,” said Jesse O’Brien, OSPIRG Foundation Policy Director. “The more we dig into Providence’s justification, the more concerned we are that the proposed rates may overcharge consumers by overstating the impact of medical cost inflation and other factors. At the same time, we are deeply concerned that Providence’s data shows that federal action to repeal or undermine the Affordable Care Act (ACA) would increase its rates even higher, as much as 38% or more.”

“Such big increases are not inevitable. We call on state regulators to get out their red pens and scrutinize these rate hikes closely. We call on state policymakers in Salem to take action to contain rising costs from the prescription drug and hospital industries. And we urge the federal government to avoid any action that would raise premiums even further.”

OSPIRG Foundation conducted an in-depth analysis of Providence’s rate proposal in consultation with the actuarial firm AIS Risk Consultants. The rate filing, all supporting documents and correspondence between the insurer and state regulators can be found at the Oregon Department of Consumer and Business Services (DCBS) rate review website, www.oregonhealthrates.org

Key findings of OSPIRG Foundation’s analysis:

• Providence’s 8% rate hike due to federal uncertainty will likely result in inappropriately overcharging consumers—especially when we do not yet know what will happen with the ACA. Although the uncertain future of the ACA is of great concern to consumers as well as health insurers, Oregon law requires health insurers to set prices based on current law—not possible future legislation—and there is little basis for the claim that current law, or its implementation, has changed in any material way to justify such a large increase. If the law or its implementation change materially in the future, Providence and all Oregon health insurers will need to revise their rates.

• Providence’s rate hike could go even higher if the American Health Care Act (AHCA) passes, or if the Trump Administration takes action to undermine the ACA. Providence estimates that aspects of the AHCA could raise rates at least 9% above their current large increase. The insurer also estimates that a Trump Administration decision not to honor the ACA’s cost-sharing reduction payment commitment could lead to additional increases as high as $24 per member per month. Together, these increases could raise rates 15% or more higher, hiking Providence’s overall increase to nearly 38%. This underscores the high stakes of the debate about the future of health reform for Oregon consumers.

• Providence’s financial position is improving. In this context, we are concerned about the justification for Providence’s proposal to add a 3% margin to its surplus while also proposing a large double-digit rate hike for the second year in a row.

• Providence’s medical and administrative cost trend projections may be excessive. Providence projects a 7% increase in the cost of health care services, but historical trend data presented by Providence in the filing suggests lower trends, and DCBS’s independent estimate of market average costs suggests that medical claims trends were essentially flat from 2015 to 2016. Providence’s administrative costs are also projected to increase very rapidly.

• A 22.7% increase would have a significant negative impact on affected Oregonians. Such a large increase would be highly disruptive for consumers. The proposed increase is also unevenly distributed across the state and will have a much bigger impact in parts of rural Oregon, where some families may face $6,000 or more in additional premium next year.

DCBS is expected to make its decision on the pending rate requests by July 20.  

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. DCBS evaluates these justifications, and must take public input into consideration. In 2011, DCBS began to hold public hearings on significant rate increases. See here for a schedule of public hearings for the 2018 rate proposals.

Since these changes have taken effect, DCBS 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