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Health insurance prices rose less on Obamacare exchanges than off them

Most people who buy Obamacare plans have no idea what the terms "on-exchange" or "off-exchange" mean. But their pocketbooks apparently do.

A woman sits with an insurance agent to pick an insurance health plan under the Affordable Care Act.
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People who buy health insurance on government-run Obamacare exchanges tended to absorb significantly smaller price increases this year than customers who purchased plans sold outside of those marketplaces, according to a Commonwealth Fund report released Thursday.

But to get those smaller price hikes, many Obamacare customers have plans that have strict limitations on where they can obtain covered health services.

Official government estimates say that about 21 million people this year will be enrolled in nongroup health plans. That's coverage from private insurers obtained outside of an employer or government-run program such as Medicare or Medicaid.

About 12 million of those people will buy individual plans "on-exchange" — either through, the Obamacare marketplace that serves residents of 38 states, or through one of the exchanges operated by 12 other states and the District of Columbia. Those government-run exchanges are the only places where low- and middle-income people can obtain federal subsidies to help lower the cost of their monthly premiums.

The remaining 9 million or so people will buy similar or even identical kinds of health plans sold "off-exchange" — that is, directly from insurers, or from traditional or web-based brokers, according to the Congressional Budget Office.

Commonwealth Fund's report compared the on- and off-exchange markets by using projections from insurers about their Obamacare-compliant plans.

The report found that monthly insurance premiums per plan member grew by an average of $40 per month for all types of plans sold on Obamacare exchanges.

But for plans sold outside those exchanges, the average monthly premium price hike per member was $48 — a 20 percent difference, the report found.

The discrepancy is because insurers expected increasing numbers of people to be enrolled in so-called closed network plans sold on Obamacare exchanges, the report said.

Such plans, either health maintenance organizations or exclusive provider organizations, do not cover medical costs for treatment from providers who are not in their network, except in emergencies. That allows insurers to better control their costs. Insurers projected a 37 percent increase in HMO and EPO plans sold on exchanges this year.

HMO and EPO plans that were sold on Obamacare exchanges, on average, had premium price increases per member of $30 per month in 2016, according to the Commonwealth Fund.

But the same plans, when sold off-exchange — where the plans are less popular — had an average premium hike of $40.

There was almost no difference found in the price hikes for so-called preferred provider organization plans, which give customers more options for covered medical care. PPO plans sold on-exchange had a $53 per member, per month premium hike in 2016, compared to $54 for PPO plans sold outside of the exchanges.

The Commonwealth Fund report also revealed that insurers who sell plans mostly through those exchanges estimated that they would devote a bigger share of their premium dollars to medical care for customers than do insurers that sell only off the exchanges.

How much you pay for Obamacare could depend on where you live

Insurers that sold plans only on the exchanges projected that they would have an average so-called medical loss ratio of 79.2 percent, which represents what percentage of premiums that they paid back out in health benefits. Insurers that sold plans only off exchange projected they would have a ratio of 77.3 percent.

Insurers who sold exclusively off the exchanges projected their profit ratio would be 2.8 percent. In contrast, insurers who sold exclusively on exchange projected a 2 percent profit margin.

On the other hand, insurers selling exclusively off-exchange had significantly higher administrative costs than did their counterparts who sold only on the exchanges. Off-exchange-only insurers had an administrative ratio of 14.2 percent, compared to on-exchange counterparts whose administrative ratio was 11.7 percent.

Mark Hall, one of the authors of the Commonwealth Fund report, said the analysis is "sort of a little window into the basic market mechanics" of Obamacare, two years into the law's full implementation for individual insurance customers.

"It is functioning as a ... competitive market," Hall said. "You see that both [on-exchange and off-exchange] are functioning pretty well. They have their differences, but it's not like someone is wounded and limping along and the other is doing much better."

"The glass is more half full than half empty," he said.