Health Care

Study: Obamacare Is Cheaper Than Employer-Backed Plans

A top consulting firm ran the numbers and found comparable health plans are 20 percent cheaper on the exchanges.

MIAMI, FL - DECEMBER 23: Certified Enrollment Specialist, Julienne Fontes, (R) helps Elva Garcia (L) and Jorge Codevila through the options available to them under the Affordable Care Act at a Miami Enrollment Assistance Center on December 23, 2013 in Miami, Florida. In a symbolic gesture ,U.S. President Obama signed up in the federal health care insurance. The goverment announced today that people will have a grace period exending into tomorow to enroll for a plan that would start January 1st. 
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Clara Ritger
Feb. 6, 2014, midnight

Health plans on Obama­care’s in­sur­ance ex­changes will on av­er­age cost less than em­ploy­er-sponsored cov­er­age, ac­cord­ing to a new re­port.

The low­est-priced plan in 2014 on the Af­ford­able Care Act’s ex­changes car­ries on av­er­age a premi­um that is 20 per­cent less than a com­par­able em­ploy­er-sponsored plan, ac­cord­ing to the re­port from the Health Re­search In­sti­tute at Price­wa­ter­house­Coopers.

The re­search­ers cal­cu­lated the total av­er­age costs of em­ploy­er-sponsored cov­er­age — both those paid by the em­ploy­ee and by the em­ploy­er. They then weighed those costs against the total av­er­age cost of low­est-price gold and plat­in­um plans on the ex­changes, be­fore sub­sidies.

Gold and plat­in­um plans typ­ic­ally carry high­er monthly premi­ums, with lower out-of-pock­et costs. The re­search­ers used those plans for their com­par­is­on be­cause they pay a sim­il­ar per­cent­age of health care costs com­pared with their em­ploy­er-sponsored coun­ter­parts. Gold and plat­in­um plans cov­er 80 per­cent and 90 per­cent re­spect­ively of a par­ti­cipant’s health care costs, while on av­er­age em­ploy­er-sponsored plans cov­er 85 per­cent of health costs.

For large firms, the ques­tion of cost com­par­is­on is aca­dem­ic: They are re­quired to provide their em­ploy­ees with health in­sur­ance or face a tax pen­alty.

For small firms — those with few­er than 50 em­ploy­ees — it’s a mat­ter of great­er con­sequence. They have the op­tion to not of­fer em­ploy­er-sponsored health in­sur­ance pen­alty free, in­stead leav­ing their em­ploy­ees to buy in­di­vidu­al plans on Obama­care’s ex­changes, pos­sibly with the help of fed­er­al sub­sidies. But if the busi­nesses do de­cide to of­fer cov­er­age, their em­ploy­ees are no longer eli­gible for fed­er­al sub­sidies.

“The plans we’re see­ing in the ex­changes are com­pet­it­ive in terms of the ser­vices they provide at the cost they’re list­ing,” said Ben Is­gur, dir­ect­or of the Health Re­search In­sti­tute.

The study com­pares the total cost of the plans, and does not dif­fer­en­ti­ate for wheth­er those costs are paid by an em­ploy­er, an em­ploy­ee or sub­sidies.

That lump-sum cal­cu­la­tion leaves it un­clear which plans — em­ploy­er-sponsored or ex­change-pur­chased — will cost cus­tom­ers the most, as it does not at­tempt to cal­cu­late what an in­di­vidu­al would re­ceive in sub­sidies or in em­ploy­er con­tri­bu­tions. Nor does it at­tempt to cal­cu­late how the health plans em­ploy­ers of­fer af­fect the wages they pay their work­ers.

But the total cost is im­port­ant, the re­search­ers say, be­cause it is what cus­tom­ers on the ex­changes watch most closely. Premi­um prices, in­sur­ance com­pan­ies say, are the most im­port­ant factor in a con­sumer’s health plan de­cision. Ac­cord­ing to a Price­wa­ter­house­Coopers re­port from last fall, 94 per­cent of in­surers be­lieved this, and cited it as the primary reas­on they began to con­tract with few­er doc­tors and hos­pit­als in an ef­fort to rein in costs.

So how are the in­surers of­fer­ing plans on the ex­changes keep­ing their costs down?

In part, the use of nar­row net­works, also known as high-per­form­ance health plans, al­lows in­sur­ance com­pan­ies to in­crease com­pet­i­tion among doc­tors and hos­pit­als by be­ing more se­lect­ive about with which com­pan­ies they in­clude in their cov­er­age.

Ceci Con­nolly, man­aging dir­ect­or of the Health Re­search In­sti­tute, said even em­ploy­ers are look­ing at nar­row­ing their net­works to lower costs.

“We an­ti­cip­ate that the pub­lic and private ex­changes are go­ing to con­tin­ue to foster great­er com­pet­i­tion and on­go­ing pres­sure to provide bet­ter value,” Con­nolly said. “Every­one’s go­ing to be able to look at what’s out there and avail­able on these ex­changes. I think em­ploy­ers will turn around and ask in­surers for sim­il­ar good value, when they com­pare plan of­fer­ings and see if they’re get­ting what they want for their money.”

Her con­ver­sa­tions with em­ploy­ers are backed up by data from the Kais­er Fam­ily Found­a­tion which shows an up­ward trend in the use of nar­row net­works. While only 15 per­cent of em­ploy­er-sponsored health plans con­tained a high-value per­form­ance pro­vider in 2007, by 2013 that num­ber jumped to 23 per­cent.

Some pa­tients have ex­pressed frus­tra­tion with the trend, es­pe­cially when it means less ac­cess to ser­vices and the loss of a fam­ily doc­tor. But even in­sur­ance com­pan­ies could change their minds, Con­nolly said, if they start to see that it’s not a tradeoff con­sumers are will­ing to make for a lower price.

“I think we’re really go­ing to learn a lot about what con­sumers want now that they really have this op­por­tun­ity to choose from a lot of dif­fer­ent plans,” she said. “And ul­ti­mately com­pet­i­tion com­ing to health care is a good and healthy thing.”

Price­wa­ter­house­Coopers’ Health Re­search In­sti­tute is a non­par­tis­an health care con­sult­ing and data ana­lys­is group.


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