Comments on Health Net’s Proposal to Increase Small Business Health Insurance Rates



OSPIRG Foundation

Executive Summary

Over 14,000 Oregonians will see double digit premium increases if state officials approve the rate increase proposal of Health Net Health Plan of Oregon (Health Net).

Health Net is proposing to increase rates 8.8% on average, affecting 38,492 Oregonians enrolled in small business plans. Over 37% are in plans set for rate hikes of more than 10%. If approved, the increase would go into effect on August 1, 2012.  The main reason given for this increase is the insurer’s projection that the combined medical and prescription drug costs will increase at an annual rate of 9.2%.

OSPIRG Foundation worked with the actuarial firm AIS Risk Consultants to analyze the rate filing. We examined the insurance company’s justification for the increase, the financial position of the insurer, and how the rate increase would impact Oregonians if it were approved.

Key findings:

Over 14,000 Oregonians would see rate increases of over 10%, and nearly 2,000 of them would see increases of over 20%. However, it would be difficult for a small business owner to understand from the filing whether they would see these high increases, and why.

Premiums for a medium-level family plan could exceed $16,800 per year. This is over 26% of Oregon median household income for a family of three or more, even before factoring in potential out-of-pocket costs.

Health Net’s projected 9.2%  medical trend appears inaccurate and excessive. The insurer seems to have double counted the impact of the prescription drug trends, 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, as is likely, 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.

Health Net paid stockholder dividends of $22.3 million out of its surplus to its parent company over the last two years. In the filing, the insurer cites the lower remaining surplus level as justification for the proposed profit target. We recommend the Oregon Insurance Division examine whether this is an appropriate rationale.

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.