Alternative Headline: Oregon Medicaid Faces Funding Crisis
[MM Curator Summary]: Oregon’s Medicaid system faces a crisis as major coordinated care organizations report hundreds of millions in losses and threaten to exit due to underfunding.
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Much publicized federal cuts haven’t even kicked in yet. But the state’s health care system for 1.4 million low-income people is already bleeding red ink, and leaders of the care organizations in the Oregon Health Plan say they can’t afford to keep delivering care at a huge loss.
This article has been updated.
The federal cuts that have been dominating headlines for months haven’t even rolled out yet — but according to those administering the program that 1.4 million low-income Oregonians rely on for free health care, the system is already in “crisis.”
The situation risks complicating or blocking care for many of the one in three Oregonians who get medical, dental and behavioral health services through the Medicaid-funded Oregon Health Plan.
Over the past year, some of the organizations paid by the state to oversee and direct care in the program have experienced massive losses. Now, some of their leaders are now considering pulling out of the program entirely, The Lund Report has learned.
The Medicaid executives’ concern? That if they keep delivering care to low-income people they’ll be hit with even larger losses due to the low reimbursement rates Oregon health officials are proposing to pay them in 2026.
Top state officials have extended a key deadline to allow talks to continue. But the crisis is coming at a time when the Oregon Health Authority is already wrestling with cost overruns. It doesn’t yet have a plan to deal for when federal cuts and costly administrative measures take effect thanks to HR 1, the federal budget plan spearheaded by Republicans in Congress.
“This is before the federal changes hit,” one longtime observer of the system told The Lund Report. “This is bad.”
State health officials charged with maintaining the integrity of the state’s Medicaid system declined to comment or confirm basic facts other than to say they were continuing to discuss the situation with CCO leaders. Citing what they called pending negotiations, a spokesperson for Gov. Tina Kotek’s office declined to comment on the situation.
Tight deadline for a deal
Things are happening fast. The groups, known as coordinated care organizations, must give notice next month of whether they intend to pull out of the Oregon Health Plan starting Jan. 1. As of now, some of them apparently would leave the program rather than renew their contracts.
To allow talks to continue, Oregon Health Authority Director Sejal Hathi notified the CCO leaders last week that the state was extending the deadline to commit by more than two weeks.
“The timelines are very tight,” Hathi wrote in an Aug. 14 email to them, obtained under Oregon Public Records Law. She noted the agency has “limited authority” to push things back further due to an Oct. 1 deadline to submit CCO rates to federal regulators for review.
The time will allow state officials to try to boost the CCO rates and consider program changes to cut costs, records show. The new deadline is Sept. 18 for the organizations to say whether they’ll stick around.
As things stand, 11 organizations oversee 16 regions in the state. If they pull out of any of those regions it could create chaos and disruptions for large numbers of people who live there, making it harder for them to get care at a time when many providers are already scarce and overbooked.
“Oregon’s coordinated care model has been a national leader, and it depends on strong, financially sustainable CCOs,” said a spokesperson for CareOregon, a nonprofit that oversees care for 500,000 Oregonians, including many in greater Portland. “If major CCOs were to withdraw, it would create instability for hundreds of thousands of members and providers and could jeopardize the coordinated model itself. That’s why we are raising these concerns now: to ensure Oregon can sustain a strong, stable Medicaid system for our members who depend on it.”
Careoregon reported losses of $200 million last year, and the spokesperson says its losses this year could exceed $300 million. That’s big even for a nonprofit organization that was holding more than $1 billion in reserves.
Like CareOregon, PacificSource ‚ which oversees care in Central Oregon, the Columbia Gorge, Marion, Polk and Lane counties —has also suffered major losses. Both organizations serve more urban populations and have seen behavioral health needs skyrocket.
Jim Havens, a PacificSource executive vice president, told The Lund Report in an email that “Like other payers in Oregon, PacificSource is facing serious financial challenges related to Medicaid. Enrollment has surged and costs have risen sharply, far outpacing the state rates meant to cover them. We project operating losses of up to $100 million in 2025, after $40 million in losses in 2024. Losses in 2026 could be significantly higher.”
Even relatively small Yamhill Community Care is worried. Its CEO, Seamus McCarthy, has been a spokesman of sorts for the Medicaid managed care groups. “Oregon’s health care system is approaching a crisis point," he said in a statement. "We hope solutions can be reached before a catastrophic event—such as a CCO not renewing its contract—forces drastic changes to the Oregon Health Plan.”
State payments trail cost trends
The prospect of CCOs pulling out of contracts to care for low-income people is prompted by the state’s proposed increases to their reimbursements averaging 6.8% — far lower than what they considered necessary to account for massive increases in people accessing health care and higher costs.
Federal funds pay for the majority, but the state also has to chip in significant funds. The Oregon Health Authority’s approved budget has to cover that, but faces numerous other cost pressures. The agency also needs to prepare for things to get worse:: observers in Salem expect state goverment revenue projections to drop substantially due to massive layoffs at Nike and Intel.
In contrast to the reimbursement increases of 6.8%, underlying costs for Medicaid insurers and others in health care are going up far more quickly — close to10% a year or more in Oregon and around the country, according to informed observers and nationally reported data.
Similar cost trends in the commercial health insurance market have led Oregon insurance regulators to preliminarily approve average premium increases of 9.7% for individual market insurers, and 11.5% for plans serving small businesses.
The projected losses cited by Oregon’s care organizations would come on this year, when payments made by the state of Oregon did not cover costs. Earlier this year, because behavioral health needs outstripped the health authority’s rate-making assumptions, Oregon lawmakers had to slip a $30 million payment into the state budget to cover some CCO losses.
On June 11, on behalf of the care organizations, McCarthy of the Yamhill nonprofit documented their concerns in a letter to Oregon Medicaid Director Emma Sandoe, saying similar messages had been shared with top agency leaders for several months.
“Underfunding by the state is threatening the health system, particularly for Oregon’s most vulnerable situations,” the letter said.
It noted that many of the groups were spending close to 100% or more of their revenue on medical expenses. That’s way over the minimum benchmark of 85% required for medical spending, a federal benchmark intended to allow 15 % to cover administrative costs and some profit. The letter said the state faced an “impending crisis.”
Sandoe declined to comment on the letter.
Oregon is among the states most reliant on managed care organizations to operate its Medicaid program. A few states barely use outside managed care organizations or insurers.
In Connecticut, officials years ago fired the health insurers they used to contract with and claimed they saved money by setting up new nonprofits to handle adminstrative services. Some longtime Oregon health care executives say it’s unclear how transferable that model is to Oregon given the geographic and democraphic disparities between states.
Past is prologue
For Oregon historians, the current situation might seem familiar. The birth of the Oregon Health Plan in 1993 came in response to what lawmakers at the time considered a crisis — insurers pulling out of the Medicaid market citing insufficient payments. The goal was to ensure adequate funding and community based care.
Since then, the late state representative, Mitch Greenlick, pushed the state to take measures to make it hard for the care organizations and their reserves to leave the program, to no avail. Former Gov. John Kitzhaber and others — including then-House Speaker Tina Kotek — have pushed the Legislature to similarly take steps to keep Medicaid profits in the state’s health care system.
None of that happened. The state has no leverage to keep care organizations and the reserves they amass from leaving the program.
Meanwhile, over the last 15 years, the work of the state office that sets rates to care organizations in the Medicaid-funded program has repeatedly come into question.
When it comes to health coverage, rates are supposed to approximate costs plus an acceptable amount of overhead. But prior to major reforms in 2012, the Oregon Health Authority used to simply tell managed care organizations how much it could afford to pay them.
Critics, including former Gov. John Kitzhaber, have noted that the system rewards inefficiencies, promoting waste. But reforms intended to change things ran into federal laws, and so did Oregon’s practices.
In 2014, federal health officials demanded Oregon Health Authority officials overhaul practices that appeared to flagrantly violate legally required actuarial rules governing rate-setting for Medicaid programs.
Two years later, care organizations, which were supposed to have rates that allowed a 2% profit margin, instead reported profits of as much as 27%, causing the state’s then-Medicaid director to advise the Oregon Health Authority’s public relations staff to kill a press release bragging about their financial health.
In 2022, the Oregon Health Authority agreed to a $22.5 million settlement with FamilyCare, a care organization that cited expert testimony to blame poorly calculated rates for its decision to leave the state Medicaid program in 2018 and take more than $100 million in reserves from its operations with it. (FamilyCare had contributed to The Lund Report, as has the group to which it donated much of its reserves, the Heatherington Foundation for Innovation and Education in Health Care. Neither entity participates in Medicaid or is affected by the current rate flap.)
In 2024, state officials appeared to admit in press release that they tried to keep reimbursement increases in Medicaid as close as possible to 3.4% — the state’s cost-growth target — despite federal rules requiring rates to reflect cost trends, not an abstract target.
Jeff Heatherington, the former CEO of FamilyCare, told The Lund Report that care organizations can leave the program, as the nonprofit he headed did, if they feel the state’s rates are unfair or not a good return on investment. He’s not sure he completely buys the most recent complaints, since some of the care organizations are dominated by hospitals that can manipulate reimbursements to “upcode” or otherwise inflate revenue or costs.
That said, the state’s reimbursement rates appear to be way too low given the losses being reported, he added. If any CCOs pull out, it could threaten access for patients and drive up costs for the state because people can’t get primary care providers and go to the emergency rooms and urgent care instead.
“You would have, I think, a real health problem” for affected members, he said.
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