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Using state exchange data, Chicago journalists estimate the true cost of health insurance Date: 03/04/14

By Joseph Burns

When purchasing health insurance, we’re basically buying blind. At the point of purchase, we have no way to know what the total cost will be at the end of the policy period. We know the monthly premium and what we might incur in deductible and co-insurance charges. But the total will be unknown until year end when we can add the premium and out-of-pocket charges together.

“You have to consider that health insurance is a bet against how much you will use the health care system,” said Andrew L. Wang, a reporter for Crain's Chicago Business. “If you’re wrong, then you lose money. But if you’re right, then the insurer doesn’t win as much.”

So, what is the true cost of one year of health insurance coverage? This is the question Wang and Kristen Schorsch, health care reporters for Crain’s Chicago, set out to answer. It’s a question health care journalists are trying to answer as well because the premium is only one part of a complex calculation that actuaries make for each consumer buying a health insurance policy.

The resulting analysis by Schorsch and Wang shows that the average total cost of coverage for a consumer for one year could be more than triple the monthly payments to an insurer.

In addition to the cost of the premium, consumers potentially have to pay a deductible and co-insurance, which together total the out-of-pocket maximum each year. What a consumer pays out of pocket is one of the biggest variables because each consumer uses the health care system differently. Complicating the matter still further is the fact that each state is divided into rating areas, and insurers can assign different premiums in different rating areas.

For all these reasons, it’s difficult to say exactly how much any given insured consumer will spend on health insurance this year, the first year under the Affordable Care Act. That’s why so many observers — health care journalists included — have focused solely on premium costs since premiums were unveiled last fall.

By daggering deep into the data from Illinois’ health insurers, Schorsch and Wang calculated what a typical 27-year-old in Cook County would spend when all the variable costs were included. To do so, they combed through data on plans insurers were offering in Illinois on Healthcare.gov and presented their findings in an article that gave consumers a detailed analysis of the total cost of insurance for a typical 27-year-old consumer and for typical consumers incurring costs at $1,000, $5,000, and $15,000 in a year.

Their work is an example of exceptional data-driven journalism that shows how reporters using publicly available numbers can estimate just how much typical consumers might spend on health care in each rating area in the nation.

Schorsch and Wang collected data from Aetna, Blue Cross and Blue Shield of Illinois, Coventry Health Care Inc., Humana Inc., and Land of Lincoln Health Inc. Co-op. These five insurers offered catastrophic, bronze, silver, gold, and platinum level plans on the state exchange in Cook County. Aetna offered seven plans, BCBSIL offered 21, Coventry offered five, and Humana and Land of Lincoln offered 19 each.

Having data from this many plans from five insurers made the calculations complex, but by organizing the data into spreadsheets and developing graphs to show the total cost of each plan as a function of billed charges, they told a compelling and useful story for Cook County consumers.

Few if any organizations have collected this level of detail on the newly insured. In January, the National Health Council introduced a calculator called Putting Patients First. The calculator helps consumer compare out-of-pocket costs when buying insurance on the ACA’s marketplaces, NHC said in a press release (pdf). On its web site, the council says it advocates for patients with chronic disease and represents health-related organizations and businesses such as pharmaceutical and biotechnology companies, health insurers, and medical device makers.

Crain’s Chicago focused only on Cook County and published its article in December. At the time, Schorsch and Wang found no other similar effort to publish information that estimated the total cost of health insurance. Until then, much of the focus had been on how much consumers would spend on premiums. Even Illinois Governor Pat Quinn was boasting about how the premiums would be affordable, Schorsch said.

“By that time, we’d been writing for a few months about the health insurance marketplaces and the premiums insurers would charge,” she explained. Clearly, a more robust cost analysis was needed. They asked the state Department of Insurance (DOI) for all the data it had from the insurers that had applied to participate in the marketplace in Illinois. Illinois consumers can start at the state insurance marketplace, Get Covered Illinois, but use the federal exchange, HealthCare.gov, to shop for and purchase coverage because the state didn’t pass a law establishing a state-based exchange.

The DOI was reviewing the data so that it could certify each plan the insurers would offer. Under the ACA, insurers can sell only qualified health plans (QHPs) that meet each state’s criteria for providing essential health benefits and meet cost-sharing and other requirements. The insurers filed the data with DOI in April.

“We requested the data from DOI and when it was denied, we filed a request under the Freedom of Information Act. DOI denied that request too, saying the data was still under review and that it was confidential,” Schorsch said. State officials were still considering the FOIA request when the federal exchange opened on Oct. 1. At that point, the DOI gave Schorsch and Wang compact disks containing all if the insurers’ filings, including information on premiums, co-payments, and deductibles for each level (catastrophic, bronze, silver, gold, and platinum) for all 13 rating areas in Illinois. Similar information was later made available at HealthCare.gov.

Knowing that for the Illinois marketplace to succeed, it would need young uninsured residents to enroll in significant numbers in every rating area, Schorsch and Wang focused on how much it would cost a typical 27-year-old to pay for a premium, deductible, and co-insurance in 2014.

“We choose the young invincibles because that’s the group that are most important to balance the costs of the elderly and chronically ill,” Schorsch said. “If you don’t have the young and healthy, the governor and the state’s health insurers were saying that plans for everyone would be more expensive. That’s why it’s important to look at total costs for this age group.”

With the data in hand, they set out to identify what a typical 27-year-old would pay for each of 71 plans that Illinois insurers were offering in Cook County. At first, the sheer volume of numbers was intimidating. “It was just pages of data,” said Schorsch. “But when we sorted out what was there, we saw that there were only certain pieces of information for each plan. For example, you could look up a silver plan from Aetna and find costs for deductibles, out-of-pocket maximums, and other figures.”

By focusing only on data for Cook County, which was rating area 1 in Illinois, and the area Crain’s Chicago serves, they built spreadsheets for each level for each insurance plan being offered. Then they built tables and graphs to show the costs for each plan.

The result is an interactive graph (See “The Total Cost of Insurance”) Crain’s graphic editor Jason McGregor built showing costs rising with usage of the health care system for each plan. “The numbers in this graph are not averages,” Wang said. “They represent a specific plan based on plan characteristics.”

To show costs as they rose, Wang and Schorsch had to make some assumptions. “Each plan has quirks about how it treats different services,” Wang said. “To do an analysis of just one plan, you could build a graph to show all of the quirks in one model but we wanted to graph all 71 plans. Therefore, we had to simplify the project somewhat. Otherwise it would have been very time-intensive.”

After discussing with actuaries from benefit consulting firms, they understood where they could make assumptions and still offer useful data. To limit the number of variables, they assumed that all health care services would be in network and that their typical 27-year-old would not qualify for any tax subsidies on the exchange.

“Up to the deductible, the policyholder is responsible for just about all costs. We called that the deductible zone,” Wang said. “After that, there is a coinsurance zone in which there is some level of cost sharing.”

As might be expected, they learned that if a 27-year-old consumer in Cook County used the health care system frequently, he or she should buy a platinum plan, the one that covers the largest share of health care costs. The premium would be higher but total costs would not rise much above the total annual premium cost, they said.

“Our analysis shows is that if you are in the high utilization range, then essentially the platinum plan would allow you to do a good job of insuring against your upside risk. You would have to commit about $5,000 in premiums by year end, but your total costs wouldn’t go much higher then that regardless of how much you use the health care system,” Wang explained.

An actuary advised them that picking an insurance plan requires estimating health costs as accurately as possible—without emotion. “If you’re picking a plan and are relatively healthy, you shouldn’t buy a platinum plan because you’re afraid of what might happen,” Schorsch said. “Consumers should ask: What am I willing to pay and what am I willing to risk?”

Next, Schorsch and Wang realized that the interactive graph showing 71 lines (one for each plan offered on the exchange) would not work in the print version. So they analyzed costs for low users of the health system ($1,000 in annual costs), moderate users ($5,000 annually), and high users ($15,000 annually). And McGregor built a graph that was not interactive (See Total Cost of Insurance – non-interactive).

“Once we had the levels of spending set at $1,000, $5,000, and $15,000, we could rank each plans on total cost,” Wang said. “Based on premium, all the cheapest plans are in the bronze and catastrophic categories, and the most expensive plans are gold and platinum. But once we showed the costs for care at $5,000 and $15,000, the cheapest plans overall at the $15,000 level are gold and platinum plans. And, the most expensive levels for someone spending $15,000 are the bronze and silver plans. We also saw that the most expensive plan at the $1,000 level became one of the cheapest plans if you were spending at the $15,000 level.”

Upon completing their analysis, the reporters called each health insurer to confirm the numbers. They also called health care foundations such as the Commonwealth Fund and actuaries at Towers Watson, to confirm that their assumptions were accurate. These sources confirmed that their methods were accurate.

Schorsch and Wang believe other journalists can do similar work for the rating areas they serve. All the data they used are available from the federal HealthCare.gov web site. For tools, Schorsch and Wang used Excel spreadsheets to collect the data to display it in graph form.

“It’s a good idea to make choices up front about what to analyze,” Wang advised. “Illinois has 13 different rating areas and we choose only one area because our readers are in Cook County. But if we added in the different rating areas for the whole state, that would have required doing what we did 13 times over, one for each rating area in Illinois. And each rating area has a different set of premiums.”

Joseph Burns, a Massachusetts-based independent journalist, is AHCJ’s topic leader on health insurance. He welcomes questions and suggestions on insurance resources and tip sheets at joseph@healthjournalism.org.