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You’ll never guess what happened when I compared group health insurance with Obamacare

by | Oct 10, 2016 | health insurance, healthcare benefits, healthcare coverage, Obamacare, small business

You’ll never guess what happened when I compared group health insurance with Obamacare

by | Oct 10, 2016 | health insurance, healthcare benefits, healthcare coverage, Obamacare, small business

In the last post (“You’ll never guess what happened when I compared COBRA with Obamacare”), I found out that Obamacare is actually an affordable solution for individuals.  Yes, it’s still a lot each month (starts at $250 for a 26-year old) for what you get (annual deductible over $5,000 for a Bronze Plan).  But I also didn’t use my previous health insurance through my employer.  So anything I saved on monthly premiums matters.

 

So after this revelation, I was approached by small business owners asking about affordable health insurance option.  So I thought, “what the heck” and I compared group health insurance (what everyone thinks of when they think of health insurance) with Obamacare (the Affordable Care Act and www.healthcare.gov).  And guess what?!?  Same result!  Obamacare was a better deal than traditional health insurance through employment!  Now let me explain … before you jump down my throat asking me to explain.

 

First, let me start with the disclaimers.  The plans I compared are not “apples to apples” but they’re still fruit.  The Affordable Care Act standardized offerings across health insurance plans.  So the plans may not be identical (ex. Provider Networks, Deductible) but they are close enough for the purpose of comparisons.  And if the plans were not identical, I compared the Obamacare plan with the lower deductible and broader network for cost purposes, which means I chose the more expensive healthcare.gov plan.  Also, I only compared plans within the Central Ohio region and plan prices may differ regionally and across states.  Yet Columbus is the “Test Market of America” so my findings should have general implications.

 

Second, I compared “total cost” of group health insurance.  Employers that offer health insurance are required to contribute at least 50% of the cost of an employee’s insurance premiums.  So an employer would pay at least half and the remaining health insurance premiums are taken out of an employee’s paycheck.  Yet, any overall savings or incremental cost would accrue equally to employer and employee.

 

Third, let me add that the “total cost” of group health insurance depends on the size and demographics of a company.  As general rules:

  1. The smaller the employer, the higher the rates
  2. The less healthy the employees, the higher the rates.
  3. The less insurance claims history, the higher the rates.

There isn’t a standard employer, nor standard health insurance plan.  But these general rules apply when thinking about the cost of health insurance.

 

At this point, I know what you’re thinking.  Seems to be a lot of disclaimer so there’s no reason to read further.  Well, I’ll jump to the conclusion. The employers I analyzed would save 44% to 51% by using Obamacare.  Wha … whaatttt?!?   Alright, let me break down what I did and provide some explanation for why this happened.

The employers I analyzed would save 44% to 51% by using Obamacare.

So now, here are the nuts and bolts of what I did.  I surveyed three different employers, all professional services firms, using their current health plan.  Because Obamacare plans are based on age, gender, and zip code, all I needed was that information to run a comparison.  I included “# employees” and “average age” in the table below.

 

Employer #1

Employer #2 Employer #3
# Employees*

10

21

5

Average Age

38

47

31

Current Health Plan (monthly premiums**)

$6,392

$48,516

$2,822

Obamacare (monthly premiums**)

$3,157 $27,335

$1,311

% Savings thru Obamacare

(51%) (44%)

(54%)

* “# employees” reflects number of employees that enrolled in health insurance.  

** “Monthly premiums” includes employees, spouses, and dependent coverage.

In all instances, each employer would save by purchasing an equivalent Obamacare plan!  This finding is consistent with my COBRA experience (previous post).  The COBRA plan would have cost me $500 per month, whereas the Obamacare plan would have cost me $300 per month.  (Note, older individuals pay higher premiums. So when I compared Obamacare plans and COBRA plans, the breakeven math tends to tip around 55 years of age.  So anyone over 55 may be better off staying on COBRA than enrolling on Healthcare.gov.)

 

In each instance, my mind was blown.  Obamacare is a more affordable health insurance option for employers.  Wha … What?!?  There isn’t a day that goes by when I don’t hear or read about the woes of Obamacare or the (un)Affordable Care Act.  So these findings, both COBRA and group health insurance, shocked me.

 

I can’t be certain of the true cause but here’s my speculation. Let me reiterate my general rules, listed above and share how Obamacare actually supports these rules:

  1. The smaller the employer, the higher the rates
  2. The less healthy the employees, the higher the rates.
  3. The less insurance claims history, the higher the rates.

Obamacare has 12 million enrollees, which is far larger than even the largest employer (supports point #1)!  A large population can spread costs of individuals with chronic diseases (ex. Diabetes, heart disease, etc) much more economically (supports point #2).  And individuals with catastrophic events (ex. Cancer, Transplants, Medical Emergency, etc) cost much more than chronic diseases but are often unpredictable and happen for a small population each year.  Because catastrophic events tend to be unpredictable, having a large pool of individuals helps spread costs and risks even further (supports point #3).

 

Just as I had more comfort knowing I had affordable options for health insurance when I left my corporate job, having SHOP as an affordable option to provide healthcare benefits gives me even more comfort as a small business.  

 

The one downside to individual health insurance employer-based health insurance is that employer-based health insurance premiums can be payroll deducted using pre-tax dollars.  This means that employees will save around 30% (or their tax rate) by getting health insurance through their employer.  I thought that this was a deal breaker until I discovered SHOP (Small Business Health Options Portal)!  SHOP is “healthcare.gov for small businesses with less than 50 full-time employees.”  In other words, almost 99% of all businesses and almost 50% of all employees are eligible to enroll in health insurance through SHOP based on the US Small Business Administration.  

 

Employers with less than 50 employees are not required by the ACA to provide health insurance.  And only 60% of small businesses offer health insurance to their employees.  For those 60% of employers that offer health insurance, SHOP can be a viable option.  For those 40% of small businesses that don’t offer health insurance, it’s worth taking a look at SHOP because health insurance is a requirement for all Americans, just like car insurance.  Because every small business is worried about their bottom line, the main consideration to offering health insurance is might be the 50% minimum contribution to an employee’s health insurance premiums.  SHOP has a great plan comparison tool that you can run (https://www.healthcare.gov/see-plans/#/small-business).  Just add your employee information (DOB, Gender) and generate expected monthly and annual costs.  The best first step is to inquire with your employees about health insurance and other employee benefits. Because everyone is required to have health insurance, then they have to find health insurance somewhere, whether from a spouse, healthcare.gov, or choose to go uninsured.  In the war for talent, you need to do everything you can to recruit and retain the best people, including employee benefits.

 

If you have any questions about health insurance for small business, SHOP, or navigating healthcare benefits, please don’t hesitate to reach out.  I’ve spent years researching healthcare and healthcare benefits and the last year figuring out affordable options for myself and my business.  Would love to help you on your journey, if at all possible.

 

Note: Please do not interpret these posts as advocating for or against Obamacare.  I’m merely laying out the data as I go through my healthcare journey.  I’ll save the discussion on whether $350 per month and a $6,800 annual deductible is a worthwhile investment for the next post.  

 

Shaun Young

When people tell me about their frustrations with healthcare, it’s always about the healthcare and health insurance system; it’s never about the actual healthcare. My sole purpose is to help you navigate the healthcare system and your healthcare benefits. I’ve spent almost two decades inside and across the entire healthcare system with corporate leaders, such as Eli Lilly, Kaiser Permanente, Walmart, and Cardinal Health. And my professional experiences cuts across clinical with a Doctor of Pharmacy from University of the Pacific and business with an MBA from Harvard Business School. Please reach out and ask me your questions about navigating the healthcare and health insurance system.

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