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Exchange premiums

By February 7, 2014Commentary

Employer reaction to the reform law is very uncertain.  The administration, legally or illegally, deferred the employer mandate for a year, conveniently until after the mid-term elections, no doubt a coincidence.  But employers are already actively evaluating their options.  A PriceWaterHouseCoopers report from its Health Research Institute compares exchange premiums to those for employment-based health insurance, a subject of some interest to companies trying to minimize their health benefit costs.   (PWC Report)   The typical employer plan is covers somewhere around 85% of total health costs according to the report, but this would really only be true in general for larger employers and even among those the spread of high-deductible plans is rebalancing the share of costs paid by the company and the employee.

But in covering 85% of costs, those employer plans are rich–in the parlance of the public exchanges they would be higher than gold and almost as good as platinum.  Very few exchange offerings are actually at that level.  The analysis finds that exchange premiums for that level of coverage are actually a few percent lower that employer-based coverage premiums, for the same relative benefit level, in large part the authors believe, because they use narrower provider networks.  The existence of these lower premiums is hard to believe, and if true, it won’t persist.  Employer-based coverage, is either mandated to or typically does spend a lower amount on administrative and other non- health expenses than the individual coverage found in exchanges.  Because insuring a company allows for accurate risk-determination across a pool of individuals, the rates typically are lower than for individual coverage.  Currently the exchange insurers are bizarrely protected by a federal stop-loss arrangement, but that will end.  But most importantly, it is apparent that the exchange insurers have likely mis-estimated their risk pool and health costs, so those premiums will likely be rising rapidly.  But if it were true that exchange premiums were lower, inevitably many employers would begin sending employees to the exchanges.

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