OSPIRG Foundation Comments on the Providence Health Plan Proposal for Individual Health Rates Effective January 2018

Providence Health Plan’s 104,747 members with individual health insurance plans will see rate hikes of 22.7% on average, and as high as 68.3%, if the premium rate hike proposed by Providence goes forward.


OSPIRG Foundation

Executive Summary[1]

Providence Health Plan’s 104,747 members with individual health insurance plans will see rate hikes of 22.7% on average, and as high as 68.3%, if the premium rate hike proposed by Providence goes forward.[2]

Providence’s reasons for the increase include a 7% increase due to the rising cost of medical services and prescription drugs, and an 8% increase due to a projected decrease in enrollment in the market caused by the uncertain future of federal health reform.

After analysis of Providence’s initial filing and the supplemental information provided, we acknowledge some of the factors that concern Providence and that prompted the rate hike proposal. Providence projects it will spend $1.05 on health care for its Individual members for every premium dollar received in 2016, and sustain a 17.8% loss on its Individual market business. However, Providence already received a rate increase of 29.7% effective January 1, 2017, which is already much larger than the underwriting loss in 2016.

We are deeply concerned about the impact of this large increase on Oregon consumers, and on the Oregon Individual market—especially coming as it does after multiple years of double-digit rate hikes from Oregon insurers. If this rate hike is approved as filed, Providence’s rates will have increased by about 80% since 2015. We urge the Oregon Department of Consumer and Business Services (DCBS) to scrutinize this filing closely. We are especially concerned that Providence may be inflating the impact of federal uncertainty, and may wind up overcharging Oregon consumers as a result.

At the same time, we urge DCBS and Oregon policymakers to take stronger steps to address the underlying drivers of health care and prescription drug costs. For too long, Oregon consumers have been 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:

  • Providence’s 8% rate hike due to federal uncertainty will likely result in inappropriately overcharging consumers. Although the uncertain future of the Affordable Care Act (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 ACA is repealed, Providence’s rates can and will likely need to be revised, but if it is not, there is a serious danger that consumers will be overcharged.
  • Providence’s financial position is improving. Despite underwriting losses, Providence was able to add to its surplus last year. In this context, we are uncertain 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. While it is appropriate for Providence to take steps to avoid additional underwriting losses, it may also be appropriate for its margin to be reduced or removed to provide some premium relief for Providence members.
  • Providence’s medical 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 shows a trend in medical costs of only 3.9% over the past year,[4] and DCBS’s independent estimate of market average claims cost suggests that overall medical claims trends were essentially flat from 2015 to 2016.[5]
  • Providence is proposing a large increase in administrative costs. Providence projects a 32% increase in general administrative costs,[6] an increase greatly in excess of the benchmark DCBS uses to assess whether administrative cost increases are reasonable. Furthermore, the proposed general administrative cost is more than twice the most recent actual value reported for 2016 on a per member, per month basis. This increase, if approved, will increase rates for members by about 2.5%, and merits close scrutiny.
  • A 22.7% increase would have a significant negative impact on affected Oregonians. Such a large increase would be highly disruptive for consumers and does not seem consistent with Providence’s stated intent to “maintain reasonable rate stability.” While many Providence members will be able to avoid paying the full premium price by taking advantage of the Affordable Care Act’s tax credits, or may find a lower-cost option by switching coverage, such a large increase will still be disruptive for many Oregon families. 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.
  • When it comes to reducing costs and improving the quality of care, it is unclear whether Providence is doing all it can. Providence has failed to provide up-to-date quality metrics data in its filing, and does not provide sufficient information to evaluate its efforts to contain costs—or even whether it is appropriately sharing the savings from its cost containment efforts with its members. Providence also appears to have experienced an unexplained spike in emergency room usage and costs, raising questions about the insurer’s efforts to contain rising ER costs and prevent unnecessary ER visits.
  • 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 add up to an additional 15% increase or more. This underscores the stakes of the debate about the future of health reform for Oregon consumers.

[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] Providence’s initial filing proposed an average 20.7% rate increase, but the company submitted a revision upping that value to 22.7%

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

[4] In fact, this is the largest historical trend provided by Providence.  The range of “Rolling 12-Month Normalized Trend” shown in the filing is from -14.0% to +3.9%.

[5] For DCBS’s 2016 analysis, see http://dfr.oregon.gov/healthrates/Documents/2018-rate-review-preparation.pdf; for the 2015-2016 comparison, see http://dfr.oregon.gov/news/Pages/20170516-2018-proposed-rates.aspx

[6] The current filing uses a General Administrative Expenses PMPM of $52.65, whereas the value in the prior filing was $39.75.  52.65 / 39.75 = 1.32