Covered California: reducing premiums through data analysis

SACRAMENTO, Calif. — A new study in the journal Health Services Research found that analyzing state data on health care usage by Covered California enrollees helped demonstrate that many were healthier and presented less risk to insurance companies than anticipated, helping drive down the cost of health premiums offered through the exchange in 2015.

The study, “Sorting Out the Health Risk in California’s State-Based Marketplace,” which was published online June 9, 2015, found that giving health insurance companies the data needed to estimate the amount they would pay or receive from a special risk-adjustment pool helped them know they could reduce their rates in many cases.
“After receiving these findings as part of their negotiations with Covered California, health plans covering the majority of enrollees decreased their proposed 2015 rates, saving consumers tens of millions of dollars in potential premiums,” the study stated.

Covered California Executive Director Peter V. Lee said that studying health care usage by Covered California enrollees with chronic health conditions can yield tremendous benefits for enrollees and potential enrollees, because representatives of the exchange can use the data when negotiating with health insurance companies every year.

“This represents the best of what a health insurance exchange can do: develop our own information about the health of our consumers so that we can come to the table as smart negotiators on their behalf,” Lee said. “This is one of the ways active purchasing works to ensure quality products at the best possible value.”

The study was conducted by a team composed of researchers from the University of California, San Francisco, the Department of Health Care Services and actuaries at Covered California. Those researchers made use of the state’s Office of Statewide Health Planning and Development (OSHPD) datasets to measure the health risk of individuals who used acute care inpatient services or hospital emergency departments during calendar year 2012. The California Department of Health Care Services (DHCS) linked the OSHPD datasets with Covered California datasets and applied the Chronic Illness and Disability Payment System algorithm developed by the University of California, San Diego, to derive risk scores and create demographic profiles. All of the data analysis and linkage was performed at DHCS behind the state agency’s information firewall to protect the confidentiality of personal health information.

“What was special about this effort is that we were able to give insurance plans something they did not have access to before,” said Covered California Chief Actuary John Bertko, one of the study’s authors. “It gave them valuable information to better estimate their costs and offer more appropriate rates for consumers.”

As an active purchaser, Covered California chooses which plans and products to offer and negotiates rates in order to offer the best value for consumers. In contrast, most other state exchanges and the federal health care exchange accept all products that health insurance companies wish to offer, at the rates they want to charge, provided that they meet basic standards and have passed regulatory review.

Open enrollment for coverage starting Jan. 1, 2016, is scheduled to begin Nov. 1. Special enrollment for health coverage if someone has a change in life circumstances, such as moving or having a baby, continues year-round. Medi-Cal enrollment also continues year-round.