A little drama over insurance rates came to a head earlier this week in Oregon, with a result you might not have expected: State regulators ordered one carrier to set rates substantially higher than it had requested. Thanks to strong reporting from The Lund Report, an independent news site dedicated to covering the state’s healthcare industry, along with some contributions from the Salem Statesman Journal, we get a fascinating glimpse of Oregon’s insurance market, the jockeying for market share, and the struggles of new entrants—in this case, one of the cooperative carriers authorized by the Affordable Care Act—to compete with the big boys.
And while the details are different in every state, the events in Oregon offer background and context for reporters elsewhere, especially in the states where another 23 co-ops are trying to gain a foothold. (In New York, for instance, the new co-op Health Republic, which captured 19 percent of the market, the largest share in the exchange, has asked for a 15.2 percent rate increase.) The co-ops are a continuing story. Their success or failure will tell us much about the viability of competitive insurance markets, and whether new players can drive down rates or give consumers more options.
On Monday The Lund Report and Statesman Journal reported that Ralph Prows, CEO of the Oregon Health Co-op, had bowed to the ruling of the state insurance commissioner, Laura Cali, who had refused to give the company the 21 percent rate decrease it was asking. The company, supported by analysis from the consulting firm Milliman, wanted the whopping decrease to compete with other carriers—especially Moda Health Plan, itself a relative newcomer, which managed to grab 77 percent of the nearly 86,000 customers in the first year of the Oregon exchange. Moda’s success owed largely to giving customers some of the cheapest premiums on the market. Diane Lund-Muzikant, executive editor of The Lund Report, told me it was “loss leader pricing that allowed them to capture a large portion of the market and then raise their rates.” This year Moda asked for a 12.5 percent increase, and was approved for an increase of close to 11 percent. What’s happened in Oregon with some carriers asking for decreases and others for increases is consistent with what insurance experts told us would occur this year.
By contrast, the Oregon Health Co-op had enrolled only a few thousand members. According to a July 17 Lund Report story, the carrier “struggled in its first year due to its lower brand recognition and relatively high premium rates”—so this year it was trying to cut those rates steeply. But Cali, the insurance commissioner, wouldn’t permit it. An Insurance Division spokesperson told The Lund Report: “Insurance companies need to be able to cover their claim costs. We want consumers to have premiums that are as affordable as possible, but you want to also be assured that your insurance company is going to be around tomorrow.” The Statesman Journal got a similar statement: The co-op’s assumptions about claim costs and customer health were “below a reasonable range.”
This is the sort of thing insurance regulators do. But there’s a political context to rate decisions. It wouldn’t be unheard of for a commissioner to give some insurers more leeway than others, and it looks like Cali’s office was playing hardball with the process here. It would be great to see some coverage that consults some independent insurance experts to scrutinize the commissioner’s decision in detail. Since insurance regulators are in no hurry to explain much to the press these days, I advise making friends with some consulting actuaries or other rate experts and have them in your hip pocket when the need arises. It will also be important to keep this episode in mind when we go through this process next year—and examine how well Cali’s decision looks in retrospect.
Questioning the politics and the decisions of state insurance commissioners also leads to a whole other set of questions we need to keep in mind as this co-op experiment moves along:
- Will the co-ops be viable and force premiums down in the long run?
- Which ones will succeed, and more important will state regulators let them succeed?
- Will the co-ops offer new policy features designed to win over consumers and how do they stack up against other offerings? In Oregon, the co-op is planning something called the Simple Plan with no coinsurance and no deductible. Instead cost sharing comes in the form of defined copayments, which will rise as a policyholder’s medical treatments become more complex.
- How are other aspects of the ACA affecting premiums? An interesting recent story in The Lund Report explored whether savings from hospitals’ drop in charity care (because more people are insured) are being passed on to policyholders in the form of cheaper premiums. In Oregon, the hospitals may be keeping the savings. This is good stuff to look at in other states.
The answers to these questions may not be known for a few years but judging from Oregon, the contours of the marketplace battles are in place. As in any battle, journalists must understand the strategies and tactics of all the combatants.