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Health insurance industry faces its own ills

Financial losses have hit the health care industry hard, especially insurers, even though insurance rates have soared in many cases.

"We all got stung, everybody did," Mike Cotton, CEO of Providence Health Plan, told a Chamber of Medford/Jackson County Forum audience Monday at Rogue Valley Country Club.

"This is an underwriting cycle, this is a brand-new populace coming in," Cotton said. "You can make the best actuarial estimates in term of costs. No one knew how many people would be eligible, how many people would come in. As we get better at it over time, we'll get better at managing this.

"This is a learning process for us as payers. ... A lot of this is pent-up demand where individuals had no access to care and now they do. They're doing what most people would do, and they're using the services."

Dealing with the health care system elicits a variety of responses from consumers, he said.

"It can be scary, it can be frustrating, it can be costly," Cotton said. "What we do as health care providers in delivering care is very important."

The health care landscape is in continual flux, he said. "Insurance companies are buying other insurance companies, providers are becoming payers, payers are becoming providers. Physicians are joining these things called accountable care organizations."

Providence Health Plan operates in five states, with operating revenue of $12 billion, and 77,000 employees who are part of a payroll of nearly $8 billion. The plan covers 600,000 people, including 31,000 in Jackson, Josephine and Douglas counties.

Under the Affordable Care Act, and an accompanying state mandate, one in three people has his or her insurance paid by Medicare or Medicaid, he said. Soon more than 50 percent of the population will have insurance paid by the government.

"When you add in the exchanges, that will be 2.2 out of every four individuals covered by some form of government insurance," Cotton said.

He said the largest health insurance organizations are mirroring the consolidation of large accounting firms in previous decades. The seven largest national insurance companies are merging into three with Anthem's acquisition of Cigna and Aetna buying Cotton's former employer, Humana.

"Those organizations will come together to make two very large mega-insurance companies to compete with the behemoth of United Health Care," Cotton said. "Think of three large insurance companies who will really drive most of the national payment process other than regional Blues across the country."

Those companies will cover anywhere from 24 million to 30 million lives, he said. "And most of it will be government paid."

Medicare is hoping to replace the fee-for-service model with value-based care payment by 2022, he said. Value-base care bases its payments not just on services provided, but also the outcomes of those services.

"As we look at the insurance world," Cotton said, "the way Medicare goes is the way all payers will go."

Consumers will see fewer insurance companies and plans in coming years, but there will be more providers, he said.

"I believe we'll actually see more provider choice," he said. "For a short period of time there will be price and rate increases."

The growing attention to cost reduction will take a lot of work, with payers, providers and consumers all pitching in, Cotton said.

"That's a problem that can't be solved solely by the health care industry," he said. "We as individuals have to take ownership of what we eat, how we exercise and what we are doing to be healthy."

Whether people agree with the Affordable Care Act, he said, there was a broader goal.

"There are things about the ACA I do not like," Cotton said. "There are things about the ACA, well maybe they're OK. I think, at the end of the day, we as a community — as a country — have an obligation to make sure that people have access to health care."

Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter at www.twitter.com/GregMTBusiness, and read his blog at www.mailtribune.com/Economic Edge.

Mike Cotton