How price and quantity factors drive spending in nongroup and employer health plans

To describe how spending in private, nongroup health insurance plans compared to spending in employer plans and to attribute those spending differences to components related to provider prices and quantity of care.

The 2016 commercial claims and enrollment data of three large, national insurers from the Health Care Cost Institute.

We compared per member per month spending across three employer and three nongroup market segments, including on-exchange, off-exchange, and short-term plans, to average commercial spending. We constructed price indices in each market segment and then decomposed spending differences into those attributable to differences in prices, health risk, plan generosity, and other factors.

We selected all medical claims for enrollees in commercial plans. We excluded enrollees with Medicare Advantage coverage or those for whom the majority of claims were covered by a secondary payer.

Provider prices were 4.1% lower in on-exchange plans (p < 0.001) and 1.4% lower in off-exchange plans (p < 0.001), compared to average prices in the same geographic area. In contrast, prices in employer plans were within roughly a percentage point of those averages. Differences in average spending were much larger than price differences. Off-exchange enrollees spent 20% less than the sample average (p < 0.001), whereas on-exchange enrollees spent 12% more (p < 0.001). Those differences were driven largely by variation in health risk, with variation in prices, plan generosity, and other factors contributing smaller amounts.

Our results indicate that provider prices in nongroup plans are much closer to the prices paid by employer plans than to the substantially lower prices paid by public payers. In addition, health risk was the largest contributor to differences in spending. Lowering provider prices and attracting healthier enrollees in nongroup plans may be crucial for lowering premiums.