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.