Pulling the plug on health costs

One of the big questions in health reform is: How can costs be controlled?

An answer came this month. The state of Oregon ordered Regence BlueCross BlueShield of Oregon to lose money on a segment of its business to hold premium rates down.

That's one way of controlling costs. But it's a short victory followed by cleaning up the mess.

Health care costs are out of control. One way Oregon is trying to control costs is by price-setting. The Department of Consumer and Business Services reviews some rate increases. The state must approve rates for insurance plans purchased by employers with 50 or fewer employees and for individuals who don't get coverage through an employer. It does not approve rates for larger employers.

Regence requested a premium rate increase for its customers who buy its individual health plans, about 56,000 Oregonians. Regence says it has been losing money on this line of its business. It has lost $98.3 million on it since 2006. It's been using its reserves to cover that.

Regence asked for a 22.1 percent premium rate increase. The company said that would cost customers on average $37 more per month.

DCBS approved a 12.8 percent increase.

The state says Regence has a surplus of about $570 million. Regence's filing says it's $544 million. The state argues the rate it set will eat $4.2 million of that surplus a year. Regence says it will be $6.9 million a year or a loss of about $10 a month per customer.

The state considered several factors in its decision: future claims costs, the impact of federal health reform, profit, administrative costs, quality and cost containment. It also looked at the overall financial health of Regence.

We won't march through the entire state analysis. We will highlight a couple.

Regence wanted a 5.5 percent increase in costs because of the impact of federal health reform requirements — what will be required as essential benefits in any health package. DCBS said that should be 3.4 percent instead.

There is no way to know who is right. The federal government has not yet defined what will be required as essential benefits.

A second issue worth looking at is administrative costs. Critics complain about health insurance executives getting filthy rich, squeezing premiums out of working people. The state found Regence's administrative costs well within what it determined to be appropriate.

Regence also requested a 1.1 percent underwriting increase as part of its proposal. DCBS called that profit and said no.

"We are careful about the extent to which we require a company to use surplus to keep rates artificially low," the state's decision read. "For a stable marketplace, rates ultimately must be sufficient to cover medical claims costs and the reasonable costs of operating the insurance company."

That is what is interesting to us about this decision. The state is setting a premium rate for health insurance below what the state estimates it costs to deliver that health insurance.

That's not sustainable. Oregon has not succeeded in controlling costs. It has shifted them. In this case, Regence might use reserves or drive up the costs of insurance plans for large employers that are not regulated by the state.

Customers who benefit from the state's decision may be pleased that they only have to pay about half of the $37 more per month Regence was asking. Other Regence customers might want to prepare to spend more for health care.

If you are looking for an answer for how health care costs will be controlled, this decision is not it.

Share This Story