Regence BlueCross BlueShield of Oregon (Regence) is proposing to raise rates an average of 22.1% on individual plans. These are plans for people who do not have employer-based coverage. If approved, this rate increase will impact 59,477 Oregonians effective August 1, 2011.
OSPIRG Foundation’s Rate Watch policy staff, consulting actuary, and advisory committee reviewed Regence’s rate request, as filed with the Oregon Department of Consumer and Business Services (DCBS), as well as further information later provided by Regence.
After careful analysis of Regence’s filing, we are concerned that Regence has not provided sufficient information to justify this rate increase. We are also concerned that a 22.1% average rate hike will drive Regence customers to drop coverage or decrease coverage with benefit buy-downs, destabilizing this pool and resulting in future rate increases.
Our key findings include:
1. Regence fails to acknowledge the impact of this rate increase on enrollment numbers, and fails to then account for the impact of ever-decreasing enrollment.
Regence does not project any meaningful change in enrollment, even though they have seen significant enrollment losses every year since 2007, when they began imposing double digit rate increases, and have lost 40% of the enrollment since that time. Absent a credible explanation for why they expect enrollment to remain steady, it is not realistic to believe that this trend will not continue, especially given the size of this increase. The proposed rate hike poses a significant risk to the stability of Regence’s risk pool. An unstable risk pool would mean that Regence enrollees will face ever-higher premiums, as less healthy enrollees are stuck paying higher costs, while healthier enrollees drop their coverage or move to higher-deductible plans.
OSPIRG Foundation requested additional information on these issues on May 16, 2011, and received Regence’s response on June 1. Their response makes us even more concerned that Regence is failing to account for the impact that this rate hike will have on their enrollment and risk pool:
- Regence’s response downplays the magnitude of its enrollment problem and the connection between enrollment and affordability of premiums.
- Regence’s claim that there is no actuarial basis to project enrollment losses contradicts actuarial standards of practice.
Regence’s reluctance to acknowledge this enrollment problem is puzzling, and refusal to build it into their rate filings is reason for concern. We recommend that DCBS only approve a rate change that ensures that consumers are protected from instability in Regence’s risk pool in this market segment due to decreased enrollment and benefit buy-downs.
2. Regence fails to adequately justify their assumption that medical costs will increase at a rate of 12.6%.
Regence’s proposed medical trend of 12.6% a year is over six times higher than its actual claims experience of 2% in this market segment. According to the rate filing, the discrepancy is apparently due to the fact that Regence relies on models that it says correct for the impact of demographics and enrollees purchasing lower-benefit coverage. However, Regence fails to provide details of the methodology or underlying data supporting these models in the filing. Given the extraordinary gap between Regence’s actual claims experience and their proposed medical trend, they should provide additional information.
The medical trend appears to contain an inappropriate hidden profit margin in the form of a trend component labeled as “fluctuation.” Regence does not appear to have taken into account the recent slowdown in medical costsreported by other insurers.
OSPIRG Foundation requested additional information on these issues on May 16, 2011, and received Regence’s response on June 1. In the response from Regence:
- Regence effectively refused to elaborate on how they arrived at the 12.6% figure, and strangely denied that their filing included an observed trend of 2% despite the filing listing the observed trend as 2% on page 3 of the Trend Information and Projection document.
- Regence confirmed that the “fluctuation” factor of 1.4% is indeed to factor in a margin of error. This is in addition to the similar 1.1% “risk and contingency” factor elsewhere in the filing, and is worthy of careful scrutiny by DCBS.
- Finally, Regence’s answer to the issue of the decreased medical claim trends of recent years raised more questions than answers, and in fact, appeared to make the case for a much lower medical trend then Regence proposes.
3. Regence’s estimates of the costs to comply with federal consumer protections may be inflated
Several consumer protections in the federal health care law that went into effect in September of 2010. These included requiring insurers to cover preventive care without requiring a co-pay, and preventing insurers from denying coverage to children with pre-existing conditions. To comply with these rules, Regence requests a cumulative 5.5% rate increase. This estimate is much higher than the 1-3% range independent analysts have suggested would be appropriate for these changes and higher as well than requests made by other insurers, but this discrepancy is not explained in the filing.
OSPIRG Foundation requested additional information on these issues on May 16, 2011, and received Regence’s response on June 1. In their response, Regence said that they believe the 1-3% range did not account for the law’s requirement for insurers to cover essential benefits, but did not provide detail on how they developed the 5.5% estimate. Regence said that “These changes have been reviewed by Milliman, an independent actuarial and consulting company.” Regence did not provide a copy of the Milliman review as part of the filing or supplemental information.
4. Regence should provide more detailed information about its efforts to reduce costs
The filing suggests that Regence is pursuing initiatives to lower health care costs while improving the quality of care. But in the filing, Regence provides only cursory information about these initiatives, the savings that have resulted so far and whether the savings are being returned to consumers in the form of lower rates. Given how critical these cost-saving measures are to the future of health care in Oregon, DCBS should request significantly more detailed information from Regence about its efforts.
OSPIRG requested additional information on these issues on May 16, 2011, and received Regence’s response on June 1. In its response, Regence writes: “It is all but impossible to break out specific savings on an item-by-item basis,” and reiterated much of what was already outlined in the filing. Given the preponderance of encouraging studies from innovators such as the Cleveland Clinic and the Mayo Clinic, it is unclear why Regence is so pessimistic about their ability to track the effectiveness of each of their cost control efforts.
5. Growing surplus levels at a time when enrollment is spiraling down may be counter-productive.
Regence proposes to contribute 1.1% or more of premium to its surplus, even though its surplus is already ten times higher than its authorized control level risk-based capital. Especially given the concerns outlined above, this component of the rate increase proposal appears unnecessary.
Instead of imposing this sizable rate hike and sending dollars to surplus, it may make more sense to for Regence to redouble its investment in proven strategies to reduce medical costs, and forgo a growth in surplus in order to stabilize enrollment while those strategies have time to get results.
Before deciding to approve or deny this rate request, we urge the Insurance Division to scrutinize the details of this filing very carefully, and require Regence to outline a concrete plan to rein in costs and stabilize enrollment.