Comments on Kaiser Foundation Health Plan of the Northwest’s proposal to raise individual health insurance rates

Kaiser Foundation Health Plan of the Northwest’s 26,014 members with individual health insurance plans will see rate hikes of 14.5% on average, and as high as 22.05%, if the premium rate hike proposed by Kaiser goes forward.


OSPIRG Foundation

Executive Summary[1]

Kaiser Foundation Health Plan of the Northwest’s 26,014 members with individual health insurance plans will see rate hikes of 14.5% on average, and as high as 22.05%, if the premium rate hike proposed by Kaiser goes forward.

Kaiser’s reasons for the increase include a projected 4% increase in the cost of providing medical services and 12.74% due to the end of federal and state reinsurance programs.  In addition, Kaiser is proposing to double the target underwriting profit included in the rates, from 1.5% to 3.0%.

After analysis of Kaiser’s initial filing and the supplemental information provided, we acknowledge some of the factors that concern Kaiser and that prompted the rate hike proposal. Kaiser projects it will spend over $1.30 on health care for its Individual members for every premium dollar received in 2015, and sustain a 19% loss on its Individual market business.[2] In such a situation, it is not unreasonable for an insurer to seek a rate increase.

However, we are concerned about the impact of this increase on Oregon consumers, and on the Oregon Individual market. Although Kaiser’s proposed increase is smaller than those proposed by some of its competitors, it remains a double-digit increase in a market that would be experiencing large increases for the second year in a row. 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, Kaiser 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.[3]

Key Findings:

  • Kaiser’s medical cost trend projection may be excessive.  Although a 4% medical cost trend is lower than many of Kaiser’s competitors, it may be higher than necessary. As Kaiser has stated in response to questions, it has chosen to adopt a higher projection in order to stay in line with the market average. However, this could lead to Kaiser’s members paying more in premium than is justified by the actual cost of health care, and we believe it is appropriate to ensure that Kaiser’s trend projection reflects its actual costs.
  • Kaiser’s projected administrative costs for 2017 increased dramatically from values reported for prior years. In particular, wages, salaries and benefits show an increase of more than 60% from 2016 to 2017. Kaiser has claimed in response to inquiries from OSPIRG Foundation that this is due to differences in accounting used for financial and rate filing purposes, but did not provide a reconciliation of the two different accounting systems. This issue should be explored carefully to ensure that excessive administrative expenses are not being passed on to insureds in higher rates.
  • Despite financial losses in 2015, Kaiser’s financial position remains stable. Kaiser is also proposing to add to its surplus, and is actually seeking a higher profit margin than in prior filings, while also proposing a large rate increase. While it is appropriate for Kaiser 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 Kaiser members. 
  • A 14.5% increase would have a significant negative impact on affected Oregonians, representing more than $1,000 in additional premium costs per year for many Kaiser members. While many Kaiser 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.
  • When it comes to reducing costs and improving the quality of care, it is unclear whether Kaiser is doing all it can, or whether its members will benefit appropriately from its successes in this key area. Kaiser has not yet provided the cost and quality metrics required in rate filings, making it hard to evaluate their progress in this area. However, it appears that the company is proposing to raise rates on the basis of a higher medical cost trend than necessary given the actual cost of providing medical care to its members, meaning that even a highly successful cost containment effort might not result in lower premiums.

[1] 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. 

[2] It should be noted that this $1.30 is before the impact of risk transfer and reinsurance.  After considering those programs, the value is $0.99; adding in administrative costs, Kaiser can still be expected to lose money for 2015.

[3] See, for example, Health Affairs, “Reducing Waste in Health Care