Reforms Will Push Up Premiums

Implementation of health care reforms in Oregon and America are beginning, but may occur in the backdraft of rising insurance premium rate shock.At the end of the 2011 and 2012 legislative sessions, headlines crowed about the progress Oregon had made on health care transformation as a result of bipartisan legislation from both sessions. In fact, Oregon has become a national leader on the topic with leadership from Oregon's governor, Dr. John Kitzhaber. From the establishment of Coordinated Care Organizations (CCOs) to the establishment of one of the first exchanges nationwide, Oregon took major steps forward in implementing health care reform.

As CCOs have begun to spring up in different communities throughout the state and details of the health insurance exchange have become more clear, a surprise that legislators didn’t anticipate is beginning to bubble-up to the surface: Major increases in health care costs will hit consumers just as the exchange debuts early next year.

Many of the causes of these cost increases are outside the control of Oregon legislators, but they nonetheless have the potential to unravel public support for reform as front-line consumers come face-to-face with the true cost of health care for the first time. 

Many legislators may have thought their work on health care reform was complete, but their oversight work on implementation may have just begun to ensure the transition to a reform reality doesn’t become a consumer nightmare.

Based on work done by the regional office of America's Health Insurance Plans (AHIP) and reported last week to the Senate Health Care Committee, here are the reasons why premiums are going up:

            *  A major factor is that "underlying medical costs are rising" at much faster rates than overall inflation.

            *  Rising costs of pharmaceuticals is another factor.

            *  Federal and state budget constraints have resulted in an underfunding of Medicare and Medicaid obligations. As a result, doctors, hospitals and other practitioners charge more to the insurance-buying public — sometimes as much as 20-30 percent more. This is what is referred to as the “cost shift.” It has a real impact on consumer rates.  

            *  The federal Affordable Care Act includes a tax on insurers — in other words, a tax on health insurance to fund more health insurance.

            *  Health insurers will pay assessments to create and administer Health Insurance Exchanges such as the one already under way in Oregon and which gained federal government approval last week — only one of six exchanges in the nation to be granted such status.

            *  In Oregon, insurers are assessed to pay the cost of the high-risk pool (the Oregon Medical Insurance Pool) for those who have no other insurance option. The Governor’s budget calls for the elimination of the so-called OMIP assessment this biennium.

            *  Oregon insurers also collect a 1 percent tax on each premium, which was imposed by the 2009 Oregon legislature to generate in-state dollars to earn federal Medicaid matching funds. The matching funds were to support health insurance for kids without insurance. The Oregon premium tax will expire in 2013.

Taken together, a report by the Wakely Consulting Group estimated that all of the issues listed above, as well as other factors, could push average rates up in the range of 38 percent in the next year. 

Oregon has at least two things going for it in the health insurance world. First, there is a very robust health insurance rate review regulatory process conducted by the Department of Consumer and Business Services. It applies to all insurers holding a license in Oregon and has been rated as one of the most complete and vigorous processes in any state. The second is that Oregon has one of the most competitive insurance markets in the country. Eight insurers operate major offices in the state and compete everyday to sign up new insurance clients.

As Oregon legislators convene in January, they may find a groundhog’s day moment as the implications of health care reform — particularly the costs to consumers — become pronounced to their constituents in a new and tangible way.

The challenge of continuing implementation, fully funding Medicaid obligations and balancing expansions of benefits against the rate shock those benefits may create for their constituents will be significant in the next biennium.