Writings and observations

Evidence: Med rate hikes can be limited

This is from an email (received a while back; this post is a bit belated) from the Oregon State Public Interest Research Group, which tracks and contends with a range of consumer and other interests in Oregon. One of those is the ballooning increase in medical insurance rates – and here OSPIRG scored a win last month, helping get a proposed massive rate increase significantly scaled back.

The email is worth quoting at some length.

Last December, we submitted comments to the Department of Consumer and Business Services (DCBS) Oregon Insurance Division, questioning the underpinnings of United HealthCare’s proposal to raise policyholders’ rates by 16.8%.

On Thursday, DCBS announced that they approved a lower increase of 10%, which according to their analysis will save consumers $4 million a year.

You can read the rate decision and the DCBS response to OSPIRG’s comments here: http://tinyurl.com/4fvqccx

For more about the original rate hike proposal and OSPIRG’s comments on the OSPIRG website at: http://tinyurl.com/4al4v9l

The reduction was due to two factors. First, United HealthCare provided updated data that suggested that their medical costs were lower than their initial filing had anticipated. Second, we had raised questions about United’s administrative costs, including the insurer’s practice of paying brokers a commission based on a percentage of enrollees’ premiums. Since premiums increase much faster than general inflation or wages, this practice can artificially inflate administrative costs.

DCBS agreed with us that theses costs were too high, and in response, United HealthCare will now pay its brokers a commission based on the number of members they sign up, rather than paying them a flat percentage of enrollees’ premiums. This change will create significant savings for consumers.

DCBS also provided a response to our comments, which gave more detail on how they analyze rate increases.

In a few areas, their response was clearly responsive to consumers’ needs. For example, as I mentioned, we’re glad that they agreed with us that the administrative costs were too high, and pushed United to lower them.

DCBS was also appreciative of our analysis of how affordable United’s insurance coverage would be for a variety of businesses and their employees, but DCBS noted that this affordability analysis has to be weighed against the need for the premium to be adequate enough to maintain an insurers’ solvency. Finally, DCBS announced that they’re conducting a study to determine the best ways of using the rate review process to reduce medical costs, which is a positive step for consumers.

There are a few areas where DCBS has more information than we do. For this set of comments, that fact limited our ability to assess the reasonableness of the filing. For example, we found that United HealthCare did not provide enough information for us to evaluate whether their estimate of the rise in their medical costs was reasonable. The insurer provided historical data for how much their claims have increased over time, but did not provide further detail on their numbers. DCBS responded that, in assessing the reasonableness of medical trend calculations, they also look at internal data about overall medical trends in Oregon. We plan to ask DCBS to share this information with us, so that we can make more informed comments.

Similarly, we found it difficult to assess whether the overall benefits being offered were a fair value for the premium charged. This is because rate filings contain detailed information only on particular changes in benefits, not each product’s overall benefits. Helpfully, DCBS has offered to share with us information on products’ baseline benefits, which will help us conducted more detailed analysis.

There are a few places where we would urge DCBS to be more aggressive in questioning insurers’ filings. For example, DCBS accepts at face value United HealthCare’s claim that their proposed 16.8% premium increase would not affect enrollment, but while this was stated in the actuarial memorandum accompanying the filing, the claim was not substantiated by any data. In the future, we would urge DCBS to require supporting calculations before accepting as justified an insurers’ enrollment expected estimates.

Along the same lines, United HealthCare’s filing said that their quality improvement and cost containment efforts would lead to per member per month savings of $9.40. We noted that it was unclear where these savings would go, since they did not appear to be directly included in the calculation of expected medical costs; there was no information about whether they were being passed along to consumers, or if a portion was pocketed by the insurer. DCBS appears to have assumed that the entire $9.60 would go directly to premium savings for consumers. While it is entirely appropriate for insurers to share in the benefit when they successfully lower costs while maintaining quality, the interests of transparency are best served when it’s clear exactly how those savings are being divided.

All in all, we’re glad that DCBS is engaging with our comments, and in this case delivered lower costs for consumers. These $4 million in savings will help make health care more affordable for thousands of Oregonians, at a time when businesses and families are often struggling. We’ll be continuing our Rate Watch project, and I look forward to updating you on future successes.

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