Price Waterhouse Coopers conducted an analysis to see how Obamacare individual market premiums and policies match up against common employer group market policies. The short story is that the Obamacare policies are priced as well or usually better than employer group market premiums:
The report found that the median rate of Obamacare exchange-sold plans that offer coverage comparable to employer-offered plans is $5,844 annually.
That’s 4 percent less than the $6,119 for the average cost of an employer-provided plan of comparable benefits coverage, the report found….
For its analysis, PwC looked at the price of Obamacare plans sold in the “gold” and “platinum” plans, the highest-priced options on the exchanges. A gold plan covers about 80 percent of a person’s health-care costs, while platinum covers about 90 percent. Those plans were used because employer-offered health plans tend to cover about 85 percent of health-care costs
I think this is an orange to tangerine comparison that slightly favors the group market products for a couple of reasons.
There are two reasons why I think this slightly understates the comparative advantage of exchange plans is risk pool composition. Work basesd risk pools are based on people working. That automatically screens out some of the sicker people who can’t work but are not on Medicare due to disability. Work based pools are slightly healthier than general population risk pools, and noticably healthier than people who could not get underwritten insurance at reasonable rates. I would love to see a risk pool weighted cost comparison. My bet is that the exchange cost differential would improve in that comparison.
The second big driver of the cost advantage for Exchange products is narrow networks tying into low reimbursement rates for providers. This is a major difference between Exchange and commercial group. Commercial insurance reimbursement rates for physical health tends to be the highest level of pay to a provider. It is not unusual for a doctor to charge commercial plans 150% or 200% of what the doctor would get from Medicare for the same procedure. Popular Exchange plans are offering reimbursement rates to a narrow network of providers at 103% of Medicare or 105% of Medicare or 107% of Medicare. This is a significant cost savings. In my region, the broad network plans are running 25% to 35% more expensive than the narrowest plans.
The analysis conducted by PWC looked at the median plan offered on the Exchange in a region. It is not looking (as far as I can tell) at a market share weighted median. This is a minor difference but in most markets, there are quite a few plans being offered that have a broad network and those plans are not selling in proportionate numbers. An analysis of the market shared weighted average Gold+ plan would probably be slightly more favorable to the Exchange plans.
This data is important because the small and mid-sized employer group markets will be significantly disrupted this fall as there will be a significant change in underwriting. Groups that are young, healthy and overwhelmingly male will see rate shock on the private markets. Those groups should have a strong incentive to start looking at the SHOP small business exchanges for better deals now.