A Comparison of Health Risk and Costs Across Private Insurance Markets

Abstract

Background: 

The Patient Protection and Affordable Care Act (PPACA) established new parameters for the individual and small group health insurance markets starting in 2014. We study these 2 reformed markets by comparing health risk and costs to the more mature large employer market.

Study Data: 

For 2017, claims data for all enrollees in PPACA-compliant individual and small group market plans as well as claims data from a sample of large employer market enrollees.

Variables and Methodology: 

Risk scores and total (unadjusted and risk-adjusted) per-member-per-month (PMPM) allowed charges. Differences across markets in enrollment duration, age, and geographic distribution are addressed. The analysis is descriptive.

Results: 

Compared with large employer market enrollees, health risk was 3% lower among PPACA small group market enrollees and 20% higher among PPACA individual market enrollees. After adjusting for differences in health risk, enrollees in the PPACA individual market had 27% lower PMPM allowed charges than enrollees in the large employer market and enrollees in the PPACA small group market had 12% lower PMPM allowed charges than enrollees in the large employer market.

Conclusions: 

On average, the PPACA individual market enrolls sicker individuals than the 2 group markets. But this does not translate to higher health costs; in fact, enrollees in the PPACA individual market accumulate lower allowed charges than enrollees in the large employer market. Lower-income enrollees particularly accumulate lower allowed charges. Narrower networks and increased enrollee cost-sharing among individual market plans, though they may reduce the value of coverage, likely significantly reduce allowed charges.