Oregon health insurers hemorrhaged red ink in 2015 as the industry continued to struggle in the Affordable Care Act era. The collective losses of the state's seven major insurers nearly quadrupled to more than $164 million, with troubled Moda Health Plans alone losing nearly $50 million in a high-profile financial implosion.
The state's hospitals, meanwhile, are basking in an Affordable Care Act
honeymoon of soaring revenue and big profits. The hospitals' charity care has plummeted since passage of the act, which has led to a tripling of their 2015 profit margins compared to 2013.
The hospitals' bonanza comes at the expense of taxpayers, the insurance
companies and consumers who, in some cases, face double-digit insurance premium rate hikes.
"It's the providers who have won in the Affordable Care Act," said Jack
Friedman, former chief executive of the Providence Health Plan. "They've gotten a whole bunch of new business and the charity care the hospitals were providing is just a fraction of what it once was."
Eighteen months since the landmark Affordable Care Act took effect, the
legislation has succeeded in its primary goal: Getting 16.4 million formerly uninsured Americans some sort of insurance coverage. In Oregon, more than half a million people got coverage through Medicaid or commercial insurance through the newly created exchange.
But that achievement has been painful, marked by technological snafus,
partisan bitterness and financial heartburn.
Numbers released this week by the Oregon Department of Consumer and Business Affairs show the steep toll Oregon insurers have paid as they struggle to adjust to the changes.
Surprisingly, Providence Health Plan, not Moda, posted the largest losses
of the year among the big seven players. It lost $63 million in 2015, a drastic reversal from the $22.3 million profit it posted in 2014. Providence spokesman Gary Walker attributed the big loss to an influx of expensive new customers and an ill-advised 14 percent rate cut it implemented in 2015.
"We're all learning this as we go," said Walker, who added that Providence
has an immense capital reserve, nearly 1,000 percent beyond state requirements.
Moda last year lost $49.5 million, its second straight year of red ink. The travails of the second-largest carrier in the state have been well documented: Its aggressive push into the individual market created by the Affordable Care Act proved to be a financial disaster, which got even worse when the federal government backtracked on promised financial assistance.
Questions about Moda's survival swirled around the company for months
until Oregon insurance regulators took the company into supervision in January. In an order signed by both parties, Moda agreed to make no significant move without approval of a state official who would be based at the company's downtown office tower. The state said it would begin the process of helping Moda customers move to different, stronger insurance companies.
Thirteen days later, the Moda saga took another strange twist when the
state suddenly rescinded its order of supervision. Oregon said it would allow Moda to resume business as usual and proceed with its own plan to replenish its capital reserves with $170 million in new money.
It appears Moda has already come up with $43 million of that new cash.
In the financial statement it provided to the state on Tuesday, Moda disclosed that in December it borrowed another $43 million from affiliated companies. This is in addition to the $50 million it borrowed from its parent company in November and still another $50 million it borrowed from OHSU in November 2014.
Moda officials refused to comment for this story, as did Oregon Insurance
Commissioner Laura Cali.
Regence BlueCross Blueshield was the lone company among Oregon's big
seven health carriers to post a profit in 2015. The Portland company earned $25.8 million in the year despite what company President Angela Dowling called "challenging economic and regulatory shifts in our industry."
Elsewhere, PacificSource lost $10.2 million, Lifewise lost $35.7 million,
Health Net Plan lost $25.3 million and Kaiser lost $13.4 million.
A wave of consolidation is already underway in the health insurance business
and most expect it to gather steam in the face of similar financial struggles industrywide. Health Net is merging with St. Louis based Centene Corp. Springfield-based PacificSource in October entered into an alliance with Legacy Health, one of the state's largest hospital chains.
In the end, the insurance companies most likely to survive are those
like Kaiser and Providence, which are affiliated with enormous hospital systems.
"Consolidation is happening now and I think there will be further consolidation," said Friedman, the retired Providence executive. "It may be that only three to four insurers have the financial wherewithal and the willingness to stay in this market."
Clare Krusing, spokesman for America's Health Insurance Plans, a Washington, D.C.-based trade group, said it's time for hospitals to offer concessions on costs. "We need to bring down the cost of care," she said. "We need to figure out how we can make care more affordable and more accessible."
For their part, hospital executives argue that their good times are unlikely
to last. The federal government will implement changes to Medicare early in the next decade that will hurt hospitals' bottom line, said Andy Van Pelt, executive vice president of the Oregon Association of Hospital and Health Systems. And even now, when urban hospitals are enjoying big gains, some smaller and more rural hospitals continue to struggle.
"I don't think the increases you're seeing now are sustainable in the
future," Van Pelt said.
Jesse Ellis O'Brien, who watchdogs Oregon health insurers for the Oregon
State Public Interest Research Group consumer advocacy group, agrees with the insurers. The changes in charitable care alone have generated huge financial benefits for the hospitals that need to be shared, he said.
Oregon's 28 largest hospitals provided $143.3 million worth of charity
care in the first six months of 2015, according to the Oregon Health Authority. That's down by nearly two-thirds from the $414.7 million worth of charity care the big hospitals provided in the same period of 2013.
As these former charity cases became paying customers, Oregon's big hospitals, many of them owned by non-profits, saw their profits swell. The operating margin at the state's larger hospitals hit 8 percent in the second quarter of 2015, according to state data, more than triple their profits from the same period in 2013.
For champions of reform, who repeatedly harped on the importance of reducing health-care costs, hospitals' big profits are not what they envisioned.
"The unspoken understanding for a long time was that hospitals were going
to charge more than they really needed to in order to cover the cost of charity care," O'Brien said. "Now, there are fewer and and fewer of those people.
Does it really make sense for hospitals to continue passing along charges for costs that are no longer in the system?"