Public Exchange Premiums Competitive with Employer Plans

By Stephen Miller, CEBS February 3, 2014

If workers have employer-provided group health care benefits but pay the full cost of plan premiums themselves, then coverage they might purchase for themselves on a public Affordable Care Act (ACA) exchange is likely to be competitive or lower than their existing costs, according to a new study by consultancy PricewaterhouseCoopers (PwC).

The findings suggest that directing employees to the public exchanges rather than providing access to group coverage at work could be an attractive alternative for some employers, especially smaller organizations not subject to the ACA's "shared responsibility" employer mandate.

PwC's Health Research Institute analyzed the average premium costs nationally in the public exchanges and calculated the median 2014 premium for a plan with coverage similar to that of the average employer-sponsored plan.

Under the ACA, consumers shopping on the public exchanges may choose from four levels of plans: bronze, silver, gold and platinum, which pay 60 percent, 70 percent, 80 percent or 90 percent of health care costs, respectively. The report found that "Across the board, at every level, average exchange premiums are lower than this year's average premiums for employer-sponsored coverage."

"The average median premium for gold plans,” for instance, “was 8 percent lower than the national average employer premium," the researchers found. Moreover, "If an individual chooses the lowest-priced plan in each state, the average exchange premium would be $4,885, or 20 percent lower than the average premium for comparable employer-sponsored coverage."

While "many of the exchange plans have narrower provider networks with more limited choices of doctors and hospitals than employer plans," the report notes that "employer interest in narrow networks and direct contracting with high-performance networks is increasing" as a cost-containment strategy.

The report concludes: "Employers may be surprised that exchange premiums in 2014 are comparable to employer premiums and in some states significantly lower than employer-based premiums. The comparison data may make public exchanges an attractive alternative for employers in the future. Employers contemplating future limits to their health care spending could face less resistance if employees are given a wider range of options at different price points via an exchange."

Even so, "It remains to be seen whether these patterns will continue over time,” the researchers point out. “As insurers gain more experience with exchange consumers, and temporary risk sharing and risk corridors are removed, premiums could change substantially in the public exchanges."

Loss of Employer Subsidy

An important point to keep in mind is that employers cannot use pretax dollars to subsidize their workers’ purchase of nongroup policies on a public exchange; thus, if a business pays a portion of its employees' health care premiums, then, for these workers, purchasing a policy through a public exchange without the employer subsidy is likely to be more costly than sticking with their current plan.

However, the situation would be different for low-income employees who are eligible for federal government subsidies to purchase plans on the exchanges. Individuals with household income between 100 percent and 400 percent of the federal poverty level are eligible for tax credits for exchange coverage if they do not have affordable employer-sponsored coverage that provides at least minimum value.

Companies that have 50 or more full-time equivalent employees (FTEs) have an incentive to keep their policies priced lower (when including the employer subsidy) than similar exchange-based policies: Beginning in 2015, large employers will face penalties of $3,000 times the number of FTEs receiving tax credits for exchange-purchased coverage (not to exceed $2,000 times the total number of FTEs).

The study did not address group plans that employers purchase on the public exchange's Small Business Health Options Program (SHOP), intended to promote competition among group health plan providers. Businesses that purchase small-group coverage won’t be able to buy plans online through a federal SHOP exchange until November 2014 for plan year 2015, the Department of Health and Human Services announced last year, although SHOP plans may be available through other means. Starting in 2017, states may let businesses with more than 100 employees buy large-group coverage through SHOP.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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