Report: Health Insurance Rate Watch Project

Executive Summary

PacificSource Health Plans is proposing a rate increase on small business plans that will affect over 36,000 Oregonians, with an average increase of 8.62% and ranging up to 14.5% for some customers. If approved, the increase would go into effect January 1, 2013.

The main reason given for this increase is the insurer’s projection that medical and prescription drug costs will increase at an annual rate of 9%, after medical costs reportedly increased by 8.7% and prescription costs reportedly increased by 12.9% in the previous year.

OSPIRG Foundation worked with the actuarial firm AIS Risk Consultants to analyze the rate filing. We examined the insurance company’s justification for the increase, the financial position of the insurer, and how the rate increase would impact Oregonians if it were approved. Our staff and consulting actuary also reviewed additional information made available by PacificSource.

After careful analysis of PacificSource’s filing and this additional information, we are concerned that PacificSource has not provided sufficient information to justify this rate increase. This is troubling, given the significant impact this rate increase would have on tens of thousands of enrollees if approved.

Key Findings:

• If approved, the impact of this increase will be significant: Over 15,000 Oregonians would see a premium increase of 10% or more. This represents approximately 41% of PacificSource’s small group market customers.
• PacificSource’s projection of 9% medical and prescription drug cost annual trends has not been justified. The data made available by the insurer is widely variable, but appears as though it may support a lower trend. PacificSource has stated that its projections are based on trends for its entire Oregon book of business, but has not supplied any data to support these projections.
• It would be difficult for a business owner to determine from the filing what his or her rate increase would be. PacificSource is proposing to increase rates as much as 14.5% on some businesses, and proposing to decrease rates by as much as 10.3% on others, but businesses owners would have to wade through pages of tables and conduct complex calculations to determine how this filing will affect their own premium rates, and why.
• When it comes to reducing costs and improving the quality of care, it is not clear that PacificSource is doing all it can. While PacificSource reports a number of encouraging initiatives to contain costs in ways that improve quality of care, the insurer does not provide enough data to meaningfully evaluate its progress in this area.
• It’s good news that PacificSource has set a medical trend goal. In response to OSPIRG Foundation questions, PacificSource revealed that they aim to reach a target medical trend rate of two percent above the medical Consumer Price Index (CPI) in three to five years. The insurer is to be applauded for setting a concrete goal in this important area. However, more information is needed to explain how the insurer chose that specific target and timeline. This is important given the difficulty businesses have affording rate increases currently, and the fact that in 3-5 years, rate increases based on trend of medical CPI + 2% will likely be unaffordable.
• PacificSource’s projections of increased enrollment may be unrealistic. The insurer’s projection of an increase of 3,000 members is not supported with quantitative data. The proposed increase may make PacificSource plans unaffordable for many Oregon small businesses. A decline in enrollment could make it more difficult for PacificSource to avoid large rate increases in the future, as this could lead to healthier groups leaving, resulting in escalating costs over time as the insured population becomes less healthy.

After careful analysis of PacificSource’s filing, we are concerned that the insurer has not provided sufficient information to justify this rate increase. 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 PacificSource to provide all documentation necessary to evaluate their proposal, and to implement a concrete, achievable plan to contain costs for Oregon small businesses.