Under Pressure as Costs Rise, the State Sweetens the Offer for Insurers That Run the Oregon Health Plan

Last month, state officials offered the private organizations that manage the Oregon Health Plan a raise—part of an annual acknowledgement of the fact that paying for health care services is getting pricier. But those costs have been increasing particularly fast lately. And the insurers, organizations like CareOregon, which collectively provide Medicaid insurance to some 1 million-plus Oregonians, said the state’s offer of a 6.8% average rate bump was grossly insufficient.

Some, many feared, might ditch the system entirely.

Last week, the state says, it came back with a better offer: a 10.2% average-per-person rate bump. This figure, essentially a projection of how much costs will continue to increase in 2026, equates to tens of millions of additional dollars from the state budget at a time when that budget is very tight.

Coordinated care organizations, which have until Sept. 18 to say whether they will accept the updated capitation rate, seem happier. “The state’s efforts to further develop 2026 rates represent a meaningful first step in addressing immediate challenges within the CCO landscape,” says a spokesperson for CareOregon in an emailed statement, adding, “We are encouraged by the state’s willingness to rethink how we provide the Oregon Health Plan to 1 in 3 Oregonians, and we look forward to partnering closely to ensure the program’s long-term sustainability.”

Driven by several factors—hospitals around Oregon largely cite rising labor and supply costs, while an aging population and other forces are also at play—experts say the health care system, nationwide, has been sucking in dramatically more money in recent years.

This money comes out of the pockets of everyday people and their employers via direct costs and insurance premiums, as well as the governments to which they pay taxes.

One way it has manifested is in higher private insurance rates, which in Oregon’s Affordable Care Act marketplace rose around 10% this year and which commercial insurers are seeking to increase by a similar amount in 2026. On the Medicaid side, however, the CareOregon spokesperson said the system for setting per-member payment rates has struggled to keep pace with “rapid abnormal changes in the health care system.”

The Oregon Health Plan is the state’s expression of Medicaid. It is largely run by a network of insurers like CareOregon—the largest—which run the health networks of which Oregon’s Medicaid recipients are members. In 2026, an Oregon Health Authority spokesperson said, the CCOs are expected receive around $8.6 billion for this purpose.

A lot of this gets funded by the federal government, but the state has to chip in, too. The Oregon Legislature supported a 3.4% annual increase in capitation rates for its 2025–27 biennial budget, according to an OHA spokesperson—which meant about $66 million in additional state funds per year atop its prior commitments.

The Lund Report first reported on the new proposed rate increase.

The new 10.2% rate, the state spokesperson said, would equate to $147 million that the state would need to allocate above that planned amount—funds, of course, that have to come from somewhere else.

“OHA’s primary goals during these discussions have been to ensure quality care for OHP members and to be good stewards of state funds, while working with CCOs to achieve both of those outcomes,” says David Baden, OHA’s deputy director for policy and programs, in an emailed statement.

When OHA announced the 2026 rates, the CCOs balked and eventually sent the state more recent data showing how their costs had increased. Between 2023 and 2024, total CCO expenditures per member grew by more than 10%, Baden says, a figure that is “in line with the overall cost of health care that we’ve seen in all sectors.“

The road ahead is not looking smoother, with the Republican Party’s major new Medicaid restrictions set to kick in in coming years, and the state estimating it will not receive billions in federal funds as a result.

“This is the start, rather than the end, of what we intend as an ongoing dialogue about ensuring the sustainability of the Medicaid program amid unprecedented fiscal and policy constraints,” Baden says.

For now, his agency, beyond the large proposed rate increase, is making little tweaks around the edges of the CCO system. OHA, he says, is working to reduce the administrative burden and reporting requirements so CCOs and OHA can both spend more time improving care for members.

According to the OHA spokesperson, the agency has also added contract language that would “carve out” certain low-utility, high-cost drugs from CCO coverage—with the state bearing the insurance risk instead. The updated rates were revised downward to reflect this change, the state says. This of course suggests that, without the change, the proposed new pay rate would have been even higher.