State makes deal with insurance companies for rural access

PORTLAND — More than 58,000 Oregon health insurance customers have been “orphaned” this year as carriers continue to struggle through the chaos wrought by the Affordable Care Act.

Amid sustained financial losses, insurers are going out of business, leaving Oregon or abandoning entire swaths of the state. Thousands of Oregonians who didn’t get cut loose by their insurers face more double-digit rate hikes.

And it could have been worse: Regence, Providence and Moda, the three largest health insurers in the state, informed regulators this summer of plans to stop serving the individual market – designed for the self-employed and others without access to group plans — in much of the state.

The change would have forced as many as 81,000 insurance customers to find new carriers.

“Central Oregon would have been down to one carrier,” said Pat Allen, director of the Oregon Department of Consumer and Business Services. “Tillamook and Lincoln counties too. We became immediately concerned about that.”

State regulators offered to make an unprecedented deal: They would reopen the just-completed rate-making process and allow the companies additional rate increases if they retained their statewide presence.

Regence and Providence agreed.

Moda didn’t get a second rate increase. It stood by its decision to drop out of 10 counties, walking away from nearly 20,000 customers. That’s on top of the 20,000 customers cast adrift in July when the Oregon Health Co-op went out of business and another 18,000 sent packing by Lifewise when it left the state altogether earlier this year.

The frantic negotiations in July and August illustrate the ongoing havoc caused by the Affordable Care Act. The signature achievement of the Obama administration meant 20 million previously uninsured Americans got coverage and access to health care. But the insurance industry still hasn’t figured out how to consistently make money in the new environment.

Oregon carriers, now prohibited from rejecting customers with preexisting health problems, have lost millions of dollars. The state’s seven largest insurers collectively lost more than $31 million in the first half of the year. Moda alone lost another $33 million in the period.

Bailing out on rural Oregon

For millions of Americans, the Affordable Care Act has been a nonevent. For those who rely on group policies — the type people get through an employer — rates, deductibles and copays have generally gone up, but not catastrophically so.

But it’s been a chaotic three years for people who buy their own insurance in the individual market — 227,000 in Oregon — particularly for those who obtained coverage through one of the new exchanges created by the Affordable Care Act.

The population in the individual market turned out to be sicker and heavier users of health care than expected. Companies that jumped aggressively into the individual market, like Moda and Providence, suffered big losses. Things got so bad for Moda that regulators issued a supervision order in January demanding the company bolster its depleted capital base or face a state takeover.

The state backed off after Moda raised an additional $115 million.

By this year, some insurers had had enough. United Healthcare, the biggest health insurer in the country, announced in April that it would exit most of the state insurance exchanges by 2017 due to the high risk. Lifewise Health Plan, a subsidiary of Premera Blue Cross in Washington, announced last spring it would cease all operations in Oregon.

Then came May, when Oregon insurance companies filed their first proposals with regulators for 2017 rates. Regulators allowed another year of double-digit rate increases in the individual market for many of the players. Moda got the largest of the big three at 29.3 percent, while Providence won approval for 24.1 percent and Regence 17.9 percent.

But the company filings contained a bombshell. The big three insurance companies wanted to discontinue operations in much of rural Oregon.

Providence wanted out of Baker, Coos, Crook, Curry, Deschutes, Douglas, Grant, Harney, Jackson, Jefferson, Josephine, Klamath, Lake, Malheur, Umatilla, Union and Wallowa counties. The company had 25,000 customers in those counties.

Moda and Regence and its affiliated carrier, BridgeSpan, told the state they were dropping out of much the same territory. Moda wanted out of all of Central Oregon and Lane County in addition to a host of rural counties.

Why those areas? In large part because the insurers didn’t have the relationships with local hospitals and health systems necessary to obtain price breaks on services.

Providence has no hospitals in Central, Eastern or Southern Oregon. Moda’s main partnerships are with Oregon Health Sciences University in Portland and Salem Hospital in Salem.

“We made decisions based on our ability to manage costs for members,” Providence spokesman Gary Walker said. “We’re best able to do that where we can apply our integrated delivery model effectively. In areas where we don’t have Providence hospitals or clinics, the key contributor to managing costs is our ability to negotiate rates with the providers in those areas.”

Privately, insurance executives blasted St. Charles Health System, which owns or operates hospitals in Bend, Redmond, Madras and Prineville, for charging high rates and being unwilling to negotiate price breaks with the major insurers.

Lisa Goodman, spokeswoman for St. Charles, said none of the insurance companies asked the hospital to cut a deal. “We had no inclination they were planning to exit Deschutes County until we read about it in the newspaper,” Goodman said.

An unprecedented deal

Allen and Oregon Insurance Commissioner Laura Cali were determined to persuade the companies to reverse course. They felt it was crucial that all Oregonians have some choices in their insurance carrier.

The issue took on a new urgency in late June when executives at the Oregon Health Co-op notified regulators they were in deep trouble. When promised financial assistance from the federal government failed to materialize, regulators took control. The co-op was small. But because it did business statewide, it was one of the few insurance alternatives in rural Oregon.

Another 20,000 customers were left in the lurch.

The co-op’s demise made regulators more determined to convince the big three to maintain their statewide presence. But they had few bargaining chips. Though they’d concluded rate-making a month earlier, Allen and Cali decided they had to reopen the process.

By then, Moda had already agreed to reverse course and remain in some counties. It stuck by its decision to leave Benton, Crook, Deschutes, Douglas, Jefferson, Klamath, Lane, Lincoln, Linn, and Tillamook counties, cutting loose nearly 20,000 customers. It did not get a second rate increase.

After a month of furious negotiation, regulators announced their new deal with insurers on Aug. 11. In return for continued statewide service, the state allowed Providence an additional 5 percent increase on top of the 24 percent already approved. Regence and Bridgespan got rate hikes of 3-6 percent on top of the 17.9 percent OK’d by the state a month earlier.

Death spiral

The seemingly unending rate increases are taking a chunk out of Oregonians’ wallet.

Shannon Richardson and her husband work as a freelancer and contractor, respectively, forcing them to obtain insurance in the individual market. The Southwest Portland couple makes too much money to qualify for the tax credits available to low-income buyers. Their monthly premium for coverage of their family of four has increased year in and year out, from $792 in 2014, to $821 in 2015, to $982 in 2016.

Moda, their current insurer, just informed them their 2017 premium will jump to $1,244 per month. The higher rates are coming on top of huge deductibles and copays. People are paying more for less coverage, said Rick Skayhan, a Portland insurance broker.

Richardson, 43, said her family had a $4,500 deductible on top of the nearly $15,000-a-year in premiums. “That’s $20,000 out of pocket,” she said, adding that she plans on dumping Moda if she can find a cheaper alternative.

Insurers and regulators alike say some of the blame must go to hospitals and health care providers. Many Oregon hospitals have enjoyed windfall profits since the passage of the Affordable Care Act led to steep declines in the amount of charity care hospitals provided.

“At the end of the day, what is driving health insurance costs is the price of health care,” Cali said. “We have to do something about getting health care costs under control.”

The nightmare scenario for the industry and regulators is that fitter, healthier profitable customers will finally drop out of the individual market due to the large rate increases, leaving only those customers who have health issues and can’t live without coverage.

“With these huge rate increases, the younger, healthier folks are likely to leave the pool, leaving an older, sicker, less desirable set of customers,” said Jack Friedman, former CEO of the Providence Health Plan in Oregon. “That could result in what’s known in the insurance business as a death spiral. This could get worse, is what I’m saying.”

Regulators are bracing for more uncertainty. “The market is unstable and it will continue to be unstable for some period of time,” Allen said.