Sometimes I groan after I complete a piece of research, knowing that the results may be seized and simplified by either end of the political spectrum .
Nevertheless, I went ahead and decided to compare premiums and out-of-pocket limits of nonprofit vs. for-profit health plans. This task is easier said than done. First, health plans vary with respect to their benefits and premium comparisons aren’t especially meaningful if there are significant disparities in covered medical services among plans. Consequently, I had to define a minimum set of benefits in order to get a decent representation of both nonprofit and for-profit plans that were similar to one another. Plans that didn’t meet the criteria weren’t included in the study.
Another problematic issue for premium comparisons is that there is a relationship between deductible amounts and monthly premiums: higher premiums often mean lower deductibles.. Comparing premiums between plans with wildly different deductible amounts isn’t fair. This issue led me to establish deductible ranges; comparisons between the plan types were performed only within those ranges.
Finally, there was the issue of location. Health insurance premiums are strongly influenced by region. This influence exerts itself on several fronts: state-specific insurance regulations that have to be satisfied; local level of competition in the market; and the medical claim trend for people living in the region. Accordingly, the premium comparisons were performed inside selected metropolitan regions and never between differing regions. Six cities were chosen as regions for premium comparisons, two from the east coast, two from the west, and two from the center of the country.
Results of the Study
The results? I found that in 47% of the comparisons a city’s nonprofit plans had the lowest average premium within a particular deductible range. For-profit health plans had the lowest premium in 39% of comparisons with the remaining 14% classified as ties since the differences between the nonprofit and for-profit averages were less than 3%.
An examination of out-of-pocket limits for these nonprofit and for-profit plans yielded similar results: Nonprofits had the lowest average limits on out-of-pocket costs in 56% of the comparisons. For-profit plans had the lowest average limits in just 28% of the comparisons.
What should we conclude based on these results? If you have strong political convictions, I can see several ways the data could be spun, particularly given the thorny issue of tax advantages that some nonprofit plans enjoy. For myself, I satisfy myself with a modest set of conclusions and let the politicos fight about the rest:
1) Nonprofit health plans are more likely to offer a lower premium than for-profit health plans
2) Removing a profit incentive from health plans as a means to make premiums more affordable cannot be supported by my study’s results since in over half the comparisons nonprofit health plans did not have the lowest premium
3) Nonprofit plans are more likely to have superior out-of-pocket cost protections than for-profit plans
It will be interesting to revisit the nonprofit/for-profit premium comparisons once the new Affordable Care Act plans are released. The Essential Health Benefits will effectively commoditize plans and health status will no longer be a factor in availability or price of coverage. As a result, so premium differences and provider networks could assume greater importance to consumers shopping for health insurance.
One of the issues not addressed in this study is the question of health plan quality (e.g. clinical outcomes, customer satisfaction, adherence to best practices, etc.). Health plans are more than premiums and the lowest cost plan might not be the wisest consumer choice if quality scores are unacceptably low. I plan on analyzing the same plans used in this study from the perspective of their quality scores to shed some light on the relationship of quality to the premium differences discovered.
Note from MM: — I am glad that Coleman ends by emphasizing that consumers need to consider quality as well as price. If insurance doesn’t protect you, it’s not worth the money, no matter how low the premiums.
As it happens, I began comparing the quality of non-profit vs. for-profit insurance plans a couple of weeks ago, and will be publishing a post on the topic in a few days. I’ll invite Coleman to come back and report on his results as well.