ACA Exchange Plans Have Some Advantages Over Employer Plans

Health insurance plans offered this year on the ACA’s exchanges in some ways represent a better value than similar employer-based plans, according to survey results obtained by PwC’s Health Research Institute (HRI). Prices for plans on the exchanges are, on average, lower than those for comparable employer plans, HRI reports, and the exchanges tend to offer a wider variety of plans than employers offer their employees. HRI points out that there is a tradeoff, however, because the exchange plans tend to have narrow provider networks. In addition, employer plans often come with financial incentives for various wellness activities. Data for the survey included information on employer-sponsored premiums of 156 million individuals in 2013.

HRI found that the average actuarial value, representing the percentage of health care costs paid by a plan (such as 60 percent, 70 percent, 80 percent, or 90 percent for Bronze, Silver, Gold, or Platinum levels), including deductibles and other cost-sharing, for employer-sponsored health plans is about 85 percent, making them comparable to plan levels between Gold and Platinum on the exchanges. With regard to price, averaging out the Gold and Platinum rates on the exchange for a rate comparable to the 85 percent average actuarial value of employer-provided plans results in a cost for 2014 of $5,844, compared to the average employer rate of $6,119.

Several factors influence these results, says HRI, including the fact that the exchange plans usually have narrower provider networks and limited choices of doctors, compared to employer plans. Because limited networks can be an effective way to reduce cost, many employers are now expressing an interest in them, HRI adds.

Another factor affecting plan costs on the exchanges is the availability to 85 percent (as projected) of individual exchange participants of federal subsidies to help them pay their premiums. Individuals earning between 100 percent and 400 percent of the federal poverty level (FPL) are eligible for these premium subsidies. In addition to the premium subsidies, cost-sharing subsidies to reduce out of pocket costs for Silver plans are available to enrollees earning less than 250 percent of the FPL.

HRI also points out that these pricing patterns may or may not continue, especially since health plans operating through the exchanges are working with new underwriting rules that provide some protection from financial risk, and there is significant variation in premium rates, from a low of $95 for a 27-year-old to $936 for a 50-year-old. Once temporary risk sharing and risk corridors are removed, prices could change, and some sort of equilibrium could be reached.

PwC expects employers to be surprised by the similarity of the exchange premiums to their own, and thinks that public exchange may be an attractive alternative for employers in the future. Employers may begin to demand from their insurers a replication of the less costly plans offered on the exchanges, PwC predicts.

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