December 3, 2009
12:01 a.m. Pacific Time
Two New Studies Provide Data on the True Costs, and Savings, of Health Insurance Plans
Bethesda, MD - As the Senate begins debating health reform legislation, two studies released today provide new information about individual and group health policies - evaluating the true value of so-called Cadillac plans and comparing the cost to consumers of employer-based plans with their individual counterparts.
Taxing Cadillac Health Plans May Produce Chevy Results
By Jon Gabel, Jeremy Pickreign, Roland McDevitt, and Thomas Briggs
Group Insurance: A Better Deal For Most People Than Individual Plans
By Roland McDevitt, Jon Gabel, Ryan Lore, Jeremy Pickreign, Heidi Whitmore, and Tina Brust
Gabel, Pickreign, and Whitmore are with the National Opinion Research Center (NORC) in Bethesda, MD.
McDevitt, Lore, and Brust are with Watson Wyatt Worldwide in Arlington, VA.
The Senate-sponsored health plan includes a provision, backed by the Obama administration, that would tax some Cadillac health plans to pay for health care reform. One widely held assumption is that high-cost plans are expensive because they offer superior benefits. The Gabel et al. paper found that other factors - regional differences in health care delivery cost, and the industry sector offering the coverage - were equally important reasons for higher plan costs. The authors studied a national cross-section of these employer-sponsored individual plans and used data obtained from the 2007 Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) survey. Various analyses were performed, and the authors found that two powerful variables affected the actuarial value of a plan: (1) the industry offering the plan and (2) the geographic cost index of the company's home base community. The authors concluded that as a public policy matter, "efforts to limit deductibility of employee benefits should make adjustments for these two factors...Our inquiry suggests, however, that analysts should not equate high-cost plans with Cadillac plans....Without appropriate adjustments, a simple cap may exacerbate rather than ameliorate current inequities."
If the new health reform legislation proposal passes, nearly all Americans would be required to purchase health insurance and the individual insurance market as we now know it would end. The McDevitt et al. study is one of the first to undertake a national comparison of the costs of policies purchased currently in the individual market with those of employer-sponsored plans. It used the same 2007 KFF/HRET data as the previous study to evaluate employer-sponsored group plans; the information about the individual plans is from a survey of individual insurance plans in ten states. Some key findings:
Employer-based plans pay for 80 percent of a member's medical costs compared to 64 percent of a member's costs in an individual plan.
Individual plans had higher deductibles than employer-based plans -- $2,100 on average compared to less than $600.
Limits on out-of pocket expenses for employer-sponsored plans were lower than individual plans: $2,171 versus $5,271.
Employer-based plans were far more affordable than individual plans: an individual in an employer-sponsored plan paid $1,422 per year in premium plus out-of-pocket expenses; this compares to $3,165 for a 25-year-old and $6,207 for a 55-year-old purchasing individual plans.
Some key benefits, such as coverage of maternity care, are nearly universal in employer-sponsored plans - but not included in 57 percent of individual plans without an additional premium.
Without the option of an employer-sponsored health plan, individuals are less likely to be able to pay for health care coverage. For those Americans with an income at twice the poverty level ($21, 574), all but 18 percent of those with access to employer-sponsored health plans spent less than 10 percent of their income on premiums and out-of-pocket medical expenses. By contrast, the vast majority of this income group lacking access to employer-sponsored health insurance spent more than 10 percent of their income on premiums plus medical services: 62 percent of the 25-year-olds and 99 percent of 55-year-olds.
Both studies are funded by The Commonwealth Fund.
ABOUT HEALTH AFFAIRS:
Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.
©2009 Project HOPEThe People-to-People Health Foundation, Inc.