Competition, it does a market good

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.

25 replies
  1. 1
    Betsy says:

    What is SHOP?

  2. 2
    aimai says:

    I’m confused–which young and healthyworkers will experience rate shock? The ones who had to buy insurance through the exchanges because they weren’t insured through their jobs? I don’t think I can take the mass whineathon that will result.

  3. 3
    Richard Mayhew says:

    @aimai: The people who are currently getting medically underwritten insurance on the small group market will see rate shock this fall.

    For instance, one of my buddies works as a bar tender at the town’s leading gay bar. He is the “old man” of the group at age 29 (the owner is 35), so the average age of the covered group is roughly 24/25. They get great insurance through work as the group is an underwriter’s wet dream (young, male, and few dependents) so their Platinum level coverage is cheaper than most people’s Bronze coverage. Next year, they can’t be underwritten medically so they’ll be in the same risk pool as a bunch of mid twenty something women for the first time which means they’ll be incurring some cost of pregnancy risk. They’ll see a 30% to 50% rate increase for the same group. 10% of that is aging of the group, 10% of that is increased coverage mandates, but 80% of the change is due to underwriting changes.

  4. 4
    Richard Mayhew says:

    @Betsy: SHOP is the small business side of the Exchanges. Small businesses can go on the Exchange, choose a policy or set of plans for their employees to choose, and then let their employees get the insurance they want with some of the premium picked up by the employer. It is effectively a disintermediation of the broker relationship for 2-50 person firms.

  5. 5
    aimai says:

    @Richard Mayhew: oh,thank you so much Richard! I see. There are so many terms of art being thrown around that I simply can’t keep them all straight.

  6. 6
    BruinKid says:

    Just when you think they can’t… the gun nuts are sharing this graphic mocking Philip Seymour Hoffman’s tragic death because he helped Mayors Against Illegal Guns in the past, as if he’s some kind of hypocrite for not wanting illegal guns flooding the market.

    Fuck this shit.

  7. 7
    Richard Mayhew says:

    @aimai: Not a problem — this is going to be a set of posts in the next week or so.

  8. 8
    MomSense says:


    Wow, they really are assholes.

  9. 9
    OzarkHillbilly says:

    @Richard Mayhew:

    which means they’ll be incurring some cost of pregnancy risk.

    Heh. Men incurring some of the cost for pregnancies. What a novel idea. Not like they have anything to do with it or anything, eh?

  10. 10
    Redshift says:

    After all the uproar about Target dropping coverage for some employees, I for one will be happy when I have some options. Our new coverage this year includes gems such as redefining the individual/family deductible to mean “the individual deductible only applies if you don’t have family coverage.” Our HR department either wasn’t smart enough to figure that out or didn’t think it was important to tell us, so I didn’t know until bills weren’t being covered that I actually have a $3000 deductible (which also applies to prescriptions for the first time.)

    In addition, our HR person dutifully parroted the insurance company’s line that all of this is “because of the ACA,” when the only sense in which that is true is “they’re not allowed to profit by staying over other people so they have to charge us more.” (I accept the reality, but not the blame-shifting.)

  11. 11
    Patricia Kayden says:

    @BruinKid: Are you surprised that they’re so tasteless?

  12. 12
    gene108 says:


    Our new coverage this year includes gems such as redefining the individual/family deductible to mean “the individual deductible only applies if you don’t have family coverage.”

    Some of that is a function of the state law in which the plan is written.

    In NJ, the family pays the entire deductible amount for deductibles under $3000. So if your insurance plan has a family deductible of $2500 the family must meet the entire $2500 deductible before the insurance kicks in, where as, if you had a $3000 deductible, if one family member hits the individual deductible of $1500 he/she no longer pays out of pocket*. Of course another family member still has $1500 deductible to satisfy.

    There are trade-offs to either approach. If one family member uses up the most insurance by a large margin, you benefit from having that person only needing to meet the individual deductible before the insurance kicks in, where as if you have one person having a major medical procedure – like say a woman giving birth – you could benefit from the entire deductible being used up, because you no longer have medical bills for the rest of the plan year for any family member.

    *I am assuming no co-insurance.

  13. 13
    NonyNony says:


    In addition, our HR person dutifully parroted the insurance company’s line that all of this is “because of the ACA,”

    Your HR department is staffed by idiots because of the ACA? I’ve read a lot of about it, but I didn’t realize it was a “full employment for idiots in HR” act. huh.

    Seriously – if your HR department allowed a contract in that changed the definition of “individual vs. family deductible” on you without knowing about it, then they’re idiots who have been defrauded by your insurance company and someone should do something about that. If they knew about it and didn’t tell you guys, then they’re idiots who have defrauded YOU as the employees and have effectively given a pay decrease without letting you know about it in advance. Either way they’re the idiots, and need to be called on it.

    (Our HR department has tried similar things. Fortunately there’s enough pushback from people who actually know and understand the law that they haven’t been able to hide as much behind the “Obamacare is the devil and makes us make bad deals with insurance companies” excuses. They still try, and nobody’s been fired for it yet, but nobody believes them either.)

  14. 14
    Richard Mayhew says:

    @OzarkHillbilly: For that subgroup, pregnancy probability that they have an active role in is very low — but in general, I agree with you

  15. 15
    burnspbesq says:

    @Richard Mayhew:

    SHOP sounds like a system I can game to get out of the individual market by hiring Spouse and Kid to do routine administrative shit (which in my case would consist mostly of filing). Yes? And if yes, worth doing?

  16. 16
    Richard Mayhew says:

    @burnspbesq: I don’t know. My recommendation is speak with a lawyer/insurance broker. This is an area of knowledge that I don’t have.

  17. 17
    newdealfarmgrrrlll says:

    Hurray for SHOP. My cousin K. is a small business owner who was born with a congenital heart defect, which as a “pre-existing condition” made health insurance financially impossible when there was a plan that would actually pick her up. Thanks to SHIP she now has health insurance for the first time in many years. She was so enthused she wrote a thank you letter to President Obama.

  18. 18
    GHayduke (formerly lojasmo) says:


    Well, given that the example cites employees at a gay bar…

  19. 19
    Fair Economist says:

    I would expect exchange insurance to be cheaper than small-group, because they don’t have to underwrite. Comparisons are easier, too, which encourages shopping and fair prices. Checking a dozen plans on the exchange is no big deal but getting a dozen small-group quotes – eeyurgh.

  20. 20
    decitect says:

    Talking with my partners, as they griped about health insurance, I speculated that Obamacare may eventually lead to single-payer/Medicare-for-all, because individuals on the Exchanges may be getting better rates than we’re giving them. It may be eventually cheaper (give raises) for a company like ours (>50ppl, near to 400+) to drop our health plan (expense on bottom-line), and our HR folks dedicated to just healthcare (also expense on bottom-line). With a significant pop in employees salary, the Exchanges may seem like the better deal. I think most businesses want health care of their books…

  21. 21
    Ruckus says:

    You didn’t know they were assholes before?

  22. 22
    Ruckus says:

    I used to own a small business with less than 10 employees. To be competitive in the craft work we did we had to have employee health care insurance. Trying to find a reasonable policy was very time consuming and took away from my work. And it cost me money (and much time!) that I would have rather paid my employees and allow them to get their own. The ACA? I wish it had come about 30-40 yrs ago. Would have made my life so much easier. The only reason I can see that a business owner hates it is because it gives employees a bit of freedom to leave. Lots of business owners hate it when an employee gives them the finger and walks out. Even if they deserve it.

  23. 23
    floridafrog says:

    @burnspbesq – my thoughts exactly. Mr Frog and I have owned a business for over 20 years. We now have only ourselves as employees. SHOP requires a business to have non-employee family members on the payroll. So it doesn’t apply to us.

  24. 24
    Duane says:

    the part the I like about SHOP is the up to 50% tax credit small for the part the employer pays of the employee’s premiums. That seems like a great deal to encourage profitable small business’s to kick in a good portion of the premium or am I reading that wrong.

  25. 25
    lefthanded compliment says:

    @floridafrog: I’m guessing you meant “non-family-member employees”.

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