Which Health Insurance Costs More - Employer Coverage or ACA Plans?

With open enrollment right around the corner, small business owners all over the nation are evaluating health insurance options and comparing the cost of employer-sponsored (group) health insurance plans and Affordable Care Act (individual) plans. A common question is which type of health insurance plan costs more?

According to a recent analysis by the Urban Institute, Affordable Care Act (ACA) plans cost, on average, 10 percent less than comparable employer-sponsored premiums.

Wait, ACA Plans Cost Less?

It's a common belief that ACA Marketplace plans cost more than employer-sponsored health coverage. It's not surprising. Recent headlines reporting premium increases perpetuate this belief.

Yes, costs of health insurance varies depending on your location, employee census, and type of health plan selected. It's always wise to research rates specific to your business.

On average, however, studies conducted by both the Kaiser Family Foundation (KFF) and the Urban Institute show ACA individual coverage is still more affordable than employer-sponsored health insurance.

Let's take a look at the numbers.

The Cost of Employer-Sponsored Health Coverage

According to the 2016 Employer Health Benefits Survey by KFF, the average cost of an employer-sponsored plan is $6,435 for single coverage ($536/month) and $18,142 for family coverage ($1,511/month). Since 2006, employer-sponsored health insurance costs increased 58 percent.

Because of the increased cost, some employers are switching to high deductible health plans (HDHPs) with savings options, like health savings accounts (HSAs) or health reimbursement arrangements (HRAs). In 2016, 29 percent of workers were enrolled in HDHPs, up from 4 percent in 2006.

The Cost of ACA Plans

In 2016, the average cost of a Silver (mid-range) single plan on the federally-run ACA Marketplace is $4,632 ($386/month). This premium cost does not include premium tax credits, which lowers the out-of-pocket premium cost for eligible enrollees. In 2016, 85 percent of enrollees on healthcare.gov qualified for a premium tax credit, paying on average just $102/month.

A Fair Comparison?

One challenge has been the ability to compare employer-sponsored and ACA plans "apple to apple."

After all, insurance plans are structured differently, with different provider networks and coverage levels. Is it even fair to compare the cost of ACA and employer-sponsored plans?

A recent analysis by the Urban Institute attempted to do just that. Urban Institute compared non-subsidized 2016 individual ACA Marketplace premiums to the average employer-sponsored insurance premiums in all 50 states and 73 metropolitan areas.

The analysis adjusted the second lowest cost non-group marketplace premiums to account for the differences in actuarial value, induced utilization, and age distribution of enrollees.

Nationally, the analysis found that individual ACA Marketplace premiums are 10 percent lower than the average employer-sponsored insurance premium, after the adjustments. 

Conclusion

It is a common misconception that health insurance costs on the ACA Marketplace are higher than employer-sponsored health insurance premiums. As new analysis by KFF and Urban Institute have recently shown, on average, ACA plans are still less expensive than employer-sponsored health plans for similar coverage.