Comments on ODS Health Plan’s Proposal to Increase Rates 9.94%

OSPIRG Foundation

ODS Health Plan (ODS) is proposing to raise rates an average of 9.94%, impacting 26,333 Oregon consumers and families with individual plans, effective November 1, 2011. The nearly 10% rate increase comes after two back-to-back years of increases exceeding 17%. If approved, the average rate will have increased 52% for individual policyholders over the last three years.

This rate filing includes some good news for consumers, as well as several areas of concern.

We commend ODS for improvements for enrollees, such as reducing the copay for some generic drugs to $2.00, and reducing rates for children because of a new state reinsurance program that will reduce their costs. We appreciate ODS’ straightforward approach to projecting medical trend, basing it on past experience with a few reasonable adjustments. In addition, ODS’ enrollment appears stable and growing, a good sign for the stability of future rates.

At the same time, we have several areas of concern that suggest the proposed 9.94% increase may not be fully justified. Especially in the current economic climate, with individuals and families struggling to keep up with rising premiums and out-of-pocket costs, it is critical for rate hikes to be thoroughly justified, and for no excessive costs to be approved.

Our key concerns with the filing include:

1. The percentage of premium expected to go to medical costs is fairly low, and the expected administrative costs are relatively high.

We are concerned that if actual administrative costs come in even slightly above projections, ODS may run afoul of the federal health reform law’s requirement that individual plans spend at least 80 percent of premium dollars on care or issue rebates to consumers. If ODS expects to have to issue rebates, it may be better and more efficient for it to simply lower its rate proposal to avoid this outcome.

2. One element of ODS’ administrative costs – agent and broker commissions – appears to be growing very fast.

ODS’ explanation for this increase is primarily that they pay their commissions based on a percentage of premium. We’re concerned that this practice unjustifiably inflates administrative costs, and we believe it may not be considered a reasonable use of premium dollars. Many in the industry have moved to paying commissions based on a flat fee rather than as a percentage of premium, and we urge DCBS to ask ODS to follow their lead.

3. ODS’ projections for medical costs may be too high.

ODS does not appear to have adequately taken into account the recent slowdown in health care cost increases largely due to the slow economy. While overall, the method ODS has chosen to predict its medical trend by looking at its past claims history seems reasonable, we believe this recent slowdown in health care costs and usage is significant and deserves ample consideration.

4. ODS may not be doing enough to help lower the cost of care while improving quality.

While ODS’ medical trend this year is lower than that used by some other insurers, we are concerned that ODS may not doing enough to help lower the cost of health care and improve its value. Researchers and clinicians have identified a large number of opportunities to promote prevention and effective care while weeding out duplicative and counterproductive treatments. From the filing, it is not clear that ODS is aggressively taking action on many of these opportunities, meaning that their enrollees might experience larger rate increases down the road.