CNBC is highlighting an interesting analysis from the Urban Institute. The Urban Institute tries to calculate an apples to apples price comparison between Exchange and Employer Sponsored Insurance (ESI) on the Healthcare.gov states.
Insuring people through Obamacare — which was crafted in part to cover people who can’t get health insurance through their jobs — may be costing less money than if they had employer-based coverage, a new study suggests.The study, by the Urban Institute, comes as premium rates for 2017 Obamacare plans are being finalized. Those premiums are expected to rise more sharply, on average, than in recent years.
But the report found that certain key Obamacare plans, on average, cost 10 percent less in premiums than average employer-based coverage, when adjusting for how much the plans cover for medical services, as well as for adjustments for health-care usage and age distribution.
There are two major adjustments here. The first is a demographic adjustment. The second is a utilization adjustment. The analysis attempts to compare what an ESI plan would charge for a cohort of people that are just as sick or just as healthy as the Exchange pool. That is a good question to ask but it is a major adjustment.
This makes sense on an age and utilization adjusted basis. We know a couple of very important things for ESI versus Exchange. The first is that ESI is heavily subsidized by both federal tax deductibility and from the employee’s point of view most of the money is never shown on the paycheck. The decision maker for an ESI plan to be offered is someone in HR or a consultant hired by HR. The decision matrix for HR includes a cost minimization function that interacts with the “don’t get screamed at by my boss or by most of the line workers” function. Richer companies place more emphasis on the not get screamed at function rather than the cost function. Secondly, ESI is more likely to have fewer systems that say no in place. The networks tend to be medium sized or broader. They are more likely to have a PPO than an EPO, more likely to have an EPO than an HMO. They are less likely to have aggressive step therapy or pre-approval limitations. ESI is still fairly permissive insurance even if it is not as permissive as it was in 1983.
On the other hand Exchange’s subsidy structure forces cost to come to the forefront of decision-making. The Second Lowest Silver (SLS) is a constant price for a given individual anywhere in the country. Silvers that are not noticeably different and significantly more expensive than the SLS won’t sell. Silvers that sell well to healthy members are being sold on the basis of significant cost advantages after the subsidy. The networks are narrow. Some are too narrow in my opinion even if they meet regulatory standards. The dominant plan type is a variant of the HMO design. Pre-approval and pre-authorization is often needed and the drug formularies often have strict limits and step therapies where cheap options have to be tried and fail before more expensive options are allowed.
To be fair, if the typical Obamacare policy is much narrower than the typical employer policy, you’d expect it to be cheaper.
Basically, when you require people to make a decision between breadth of network and/or choice and price, people choose price. This is also what airlines have found out, sometimes painfully. Very few people are willing to pay extra for amenities when it comes to a service that they see as a necessity and not a luxury.