A Comparison of Health Risk and Costs Across Private Insurance Markets

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.

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.

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.

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.

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.