Will Exchanges Really Be Able To Provide Lower Cost Health Insurance?

A new survey conducted by Kaiser Permanente and reported today in The Denver Business Journal finds that small businesses in Colorado indicate that they will be more likely to offer health insurance to their employees once the health benefits exchange is up and running in 2014.  Currently, 37% of small businesses (50 or fewer employees) in Colorado offer group health insurance benefits to their employees.  But the survey of 300 Colorado small business owners found that 59% of them would be likely to offer health insurance benefits in 2014 via the health benefits exchange.

According to the article in The Denver Business Journal, the survey told business owners about the exchange being an online marketplace where small businesses can “pool their buying power and buy lower-cost health insurance.”  After being informed of these details, 59% of respondents said they would be likely to provide health insurance for their employees as of 2014.

Of course, we don’t know yet what the actual reality of the health benefits exchange will be.  We’re still waiting to see what the Supreme Court rules regarding the ACA.  But Colorado is committed to moving ahead with various aspects of healthcare reform – including the health benefits exchange – even if the ACA is partially or entirely struck down by the court.

When presented with a positive view of the exchange as a place where health insurance will be “lower-cost”, it’s not surprising that a lot more employers say they would be likely to offer health insurance to their employees.  What remains to be seen however, is whether the exchange can deliver on that promise, especially if the individual mandate portion of the ACA gets struck down by the Supreme Court or overturned by legislative action in the future.

One of the main reasons the exchanges are expected to be able to deliver lower cost health insurance is the individual mandate.  If insurers know that everyone – including healthy people who may currently be uninsured – will be obtaining health insurance, they will be able to price coverage at a lower point and still be able to cover the cost of claims, since that cost will be spread over a larger population.  But if health insurance isn’t mandatory, it’s hard to see how the exchanges would be able to achieve a significant reduction in premiums, especially in states like Colorado that already have a competitive health insurance market.

It will be interesting to see how health insurance premiums in both the individual and small group market look in 2014 when the exchanges get underway, and then again in 2015.  If we do see a significant reduction in the cost of small group health insurance via the exchanges, I have no doubt that plenty of small businesses will be eager to set up group plans for their employees – we already know that cost is the primary barrier, and that a lot of businesses would like to offer health insurance but simply cannot afford to do so.  But I also wonder whether we might see trends in premium increases that are similar to what we have now, even within the exchange.  In order to really get a handle on health insurance premiums, we have to find effective ways of controlling healthcare costs first.  The ACA included numerous cost-control provisions, but it remains to be seen how effective they will be.  The exchanges are a good way for people and businesses to be able to shop for health insurance and coordinate their coverage with their federal health insurance subsidies.  But the exchanges cannot address the actual cost of healthcare, which continues to climb much faster than inflation.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.


  1. Exchanges have several tools they can employ to produce premium savings in the long term but any possibility of short term premium savings is doubtful.
    The idea that small businesses can pool employers together to produce savings sounds plausible to those who don’t understand the small group market but is a complete fantasy. Colorado insurers already pool groups together to produce their rates. Exchanges will actually fragment the exisitng small group market into smaller pools without creating any new volume that could drive rates down.
    The creation of greater employee choice coupled with an improved buying experience, assisted by the employer tax credit could drive employers to the exchange and create the volume needed to affect rates. This is where the exchange should focus its attention.

  2. Jim – as usual, an excellent comment. I agree completely. I think that the whole idea of “pooling together to get better rates” is a fantasy that a lot of people believe, especially if they aren’t familiar with how the health insurance market works. It’s quite common for people to believe that group rates must be lower than individual rates, simply because the group plans have “lots of people pooled together”.

    I agree that one of the keys to success for the exchanges in the small group market will be the availability of multiple plan choices for employees. Right now, especially in small groups, I think it’s pretty standard for there to be one or maybe two plan choices available, with little say on the part of the employee as far as what’s available. The exchanges could change this, and if they market it well that could definitely drive enrollment.

    But although the tax credits will help for a lot of people, I don’t think we’ll see significantly lower health insurance premiums just by implementing an exchange. I think that’s only going to come as we find ways to lower healthcare costs in the long term, and that’s something over which the exchanges have little control.

  3. I really do believe if everyone as to get health insurance, rates will dramatically drop. If everyone is paying into a pot and not everyone is using it only those that need it, the outcome is everyone wins. However I do think hospitals and clinics need more regulation on how much is being charged for visits and operations.

    This is a personal opinion

  4. Great article. I’m excited to see some transparency in relation to health plans. It seems that everything related to health insurance is meant to confuse the consumer and discourage them from asking questions. Does anyone know if Colorado has plans to propose their own individual mandate if it is struck down on the federal level? Having everyone contribute to the pot by purchasing health insurance seems like it would drive down costs not only for health insurance but for health care as a whole. If providers and hospitals are getting paid because people have insurance, they don’t have to incorporate that loss into their costs. However, what a hospital charges is irrelevant, since the health insurance company only pays the negotiated rate. I feel providers will have to be watched carefully and as their revenues increase due to the increase in covered patients, insurers will be able to decrease their reimbursement amounts, therefore decreasing health care costs as a whole.

    • I know that Colorado plans to keep going on many aspects of healthcare reform (a lot of which was recommended by the Blue Ribbon Commission a few years ago), even if the ACA is overturned. However, if the Supreme Court were to rule that the individual mandate is unconstitutional, I imagine that would make it much harder for individual states to set up their own individual mandates – or if they did, I think it would be challenged in court and possibly overturned based on the high court’s precedent. That’s just my guess, but it will be interesting to watch the whole process, both on a federal and state level.

  5. Nice business stats relating to health insurance for business in colorado. Now I am interested if that is similar to the small business community for Spokane, WA.

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