ACA Exchange May Be Viable Benefit Option for Employers

PwC’s Health Research Institute (HRI) found in 2014 health insurance plans offered on the ACA’s 51 new exchanges are on average, comparable to, or lower-priced than, similar employer-based plans. In addition, most exchange shoppers have a wider variety of plans than the typical employer-based offering. 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, HRI says.

A survey by the Healthcare Trends Institute, among 300 human resources executives across the country, found employers are looking into a defined contribution (DC) model for health benefits, in which an employee is offered a menu of plan options and a set dollar amount with which to purchase the most suited plan for the employee (see “Companies Looking into DC Model for Health Benefits”).

Under the ACA, consumers shopping on the 51 new state exchanges may choose from four levels of plans, named bronze, silver, gold, and platinum, which pay 60%, 70%, 80% or 90% of health care costs, respectively, known as the actuarial value. The actuarial value includes costs such as deductibles and other types of cost sharing. Employer-sponsored health plans pay about 85% of health care costs with the remainder paid by the employee. In other words, HRI explains, the average employer-based plan falls between the gold (80%) and platinum (90%) levels created under the law.

According to the HRI analysis, 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 is 8% lower than the national average employer premium. When examining the average of the lowest premiums for gold plans, the gap is 27%. Premiums for platinum plans are naturally higher—the average lowest premium is 13% below the average employer plan, while the average median premium is 1% lower.

Many of the exchange plans have narrower provider networks with more limited choices of doctors and hospitals. However, HRI contends, employer interest in narrow networks and direct contracting with high performance networks is increasing. Under the ACA, cost sharing options for exchange plans are limited within each metal level, covered services are set by “essential health benefits” regulations, and administrative expenses are constrained at 20% by medical loss ratio requirements. Of the remaining tools, limited networks can be effective in reducing premium costs.

HRI analyzed the average premium costs for a working population nationally in the public exchanges, and calculated that the median 2014 premium for a plan with coverage similar to that of the average employer-sponsored plan was $5,844. The typical actuarial value of an employer-sponsored plans falls between the gold and platinum exchange plans. By comparison, the average employer premium for a single worker was $6,119, a difference of about $275, or 4%. The premiums do not include subsidies.

The difference between premiums in exchange plans and employer-based coverage depends on which plan a consumer chooses. If an individual chooses the lowest priced plan in each state, the average exchange premium would be $4,885, or 20% lower than the average premium for comparable employer-sponsored coverage.

The HRI analysis report is available at http://www.pwc.com/us/hix.