Oregon Health Authority committee floats cap on commercial health insurance payments to hospitals

Faced with surging hospital costs and mounting pressure on household budgets, Oregon officials are mulling a hard cap on commercial insurance payments to hospitals in hopes of controlling costs.

The idea is already in practice for public employees’ health plans in Oregon. Now, state health officials are exploring whether this model could help address broader affordability concerns in the commercial health insurance market — including plans people get through employers or the health care marketplace.

New data from the Oregon Health Authority shows that commercial health insurance payments to hospitals have continued to climb, contributing to the state’s overall medical spending. In 2023, Oregon hospitals received more than $2.16 billion from commercial insurers — a 3.4% increase from the previous year, according to the state’s latest hospital payment report.

The report, which tracks annual payment trends, shows that commercial insurers paid hospitals an average of $38,208 for common inpatient procedures, a 23.4% increase over the past five years. Even after adjusting for inflation, costs rose more than 5%. At the same time, hospitals performed nearly 18% fewer of these procedures for commercially insured patients.

The state’s latest hospital payment data also shows significant differences in what commercial insurers pay hospitals across Oregon. For example, hospitals along the state’s northern coast charged an average of $14,172 for routine maternity care without complications, compared to $10,115 at Portland-area hospitals.

Clare Pierce-Wrobel, the director of Oregon Health Authority’s health policy and analytics division, said the trends reflect a broader challenge of health care affordability in the state. She said health care costs are rising faster than wages and household incomes, leaving many Oregonians with higher premiums, bigger out-of-pocket bills and growing financial barriers to care.

“It’s just not sustainable,” she said. “High health care costs hurt people and Oregonians are delaying care because of it.”

Pierce-Wrobel said the state’s hospital payment data highlights the trade-off between wages and rising health care costs, particularly in commercial insurance. She said as health care costs rise and more people are enrolled in high-deductible plans, consumers are increasingly exposed to price variation across hospitals and services. These costs directly affect take-home pay, as higher health care spending often comes at the expense of wages.

“We need a health care system that’s affordable for everyone,” Pierce-Wrobel said. “There are policy levers we need to look at to address this growing affordability crisis.”

One of those policy tools is already in place for state employees. Under legislation passed in 2017, the state became the first state to cap hospital payments for its public employee health plans. The law — which was fully implemented in 2020 — limited payments at 200% of Medicare rates for hospitals that stayed in-network and 185% for those that declined to participate. The law also limits annual premium growth to 3.4% annually and prohibits hospitals from billing state workers for the difference. It applies only to Oregon’s 24 largest hospitals and exempts smaller, rural facilities and those with high Medicaid patient volumes.

Ali Hassoun, director of the Public Employees’ Benefit Board and the Oregon Educators Benefit Board, said the cap was introduced in response to significant price variation among hospitals. Before the cap, state data showed inpatient hospital payments ranged from 185% to 340% of Medicare rates, with no clear correlation to quality. Hassoun said the cap has helped the state manage health care spending without disrupting access to care or shrinking hospital networks.

Since implementation, inpatient payments at affected hospitals have fallen to an average of 165% of Medicare rates, and outpatient payments to about 190%, according to Hassoun. The state estimates the policy saved approximately $160 million in its first two years. A 2024 study found that Oregon’s cap led to a 9.5% reduction in out-of-pocket spending for state workers with high cost-sharing health plans.

The state health authority estimates that Oregon could have saved more than $500 million in 2023 if commercial insurance payments had been similarly capped at 200% of Medicare rates.

Expanding the cap to the commercial health insurance market, however, would require legislative action, according to state officials.

Pierce-Wrobel said this kind of policy is one of several options that Oregon’s newly formed Committee on Health Care Affordability will examine. She said the committee is tasked with recommending ways to slow health care cost growth and address unexplained price variation.

“One of OHA’s strategic goals is increasing access to affordable health coverage, and one of our key measures is how many Oregonians delay care because of cost,” she said. “Having insurance doesn’t always mean care is affordable.”

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