Report: Health Insurance Rate Watch Project

Comments on Providence Health Plans Proposal to Increase Individual Health Insurance Rates

Released by: OSPIRG Foundation

EXECUTIVE SUMMARY

More than 12,000 Oregonians with individual health insurance plans will see rate hikes of 15.7% on average, and as high as 18.6%, if the premium rate hike proposed by Providence Health Plans goes forward.

If approved, the increase would go into effect on November 1, 2012. The main reason given for this increase is the insurer’s projection that the combined medical and prescription drug costs will increase by 7.2%, after having reportedly increased by 18.8% in the previous year. Many Providence customers would also see increases in out-of-pocket costs.

This proposal comes after Providence’s rates for these plans were reduced by 4% last 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 DCBS and Providence.

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

Key Findings:

1. Impact of rate increase

  • Over 10,400 Oregonians would see a premium increase of 15% or more, which is over 86% of Providence’s individual market customers. In the original filing, the distribution of this rate increase was not apparent.
  • Coming a year after a sizable rate decrease, this proposed increase represents a major price fluctuation for Providence customers. Large swings in premium prices from year to year have disruptive effects for consumers operating on a budget, and also contribute to increasing the overall volatility of the health insurance marketplace.
  • On top of rising premium costs, Providence customers would face increased financial risk in case of illness. Due to increasing out-of-pocket maximums, an individual could wind up on the hook for up to $12,500 in costs in addition to premium.4 That represents approximately half of the median income for individuals in Oregon.

2. Providence’s Justification for rate increase

  • Providence’s projection of 7.2% for the combined medical and prescription drug trend has not been adequately justified. The insurer has not yet provided enough data to determine the validity of its trend projection, and it appears that this projection may be inflated.

3. Impact on the stability of the plan and the insurer

  • Providence does not adequately account for the possibility that such a large rate hike could lead to a decline in enrollment. Providence’s projection of steady enrollment seems unrealistic and is not supported with quantitative data. Such a large increase is likely to make Providence plans unaffordable for many Oregonians, and may lead to a drop in enrollment. Given the small size of the risk pool, this raises concerns about long-term stability that should be resolved before any increase is approved.
  • According to the filing, Providence intends to continue contributing to its $432 million in surplus despite hiking premiums and risking a loss in membership. The stability of Providence’s risk pool may be better served if the insurer invested some of this surplus to smooth out its premium fluctuations and prevent a drop in enrollment.

We respectfully urge DCBS to closely examine each of these issues, as well as all the others raised through these comments, as it completes review of this rate increase.

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