4 Ways to Choose Between Obamacare and Job-Based Health Insurance

Step 1—Determine the Actuarial Value of the Job-Based Health Plan

Comparing exact coverage details is pretty difficult when you’re trying to choose between several health plans. However, there’s a short cut that’s much easier: compare actuarial values.

The actuarial value of a health plan tells you what percentage of yearly healthcare expenses, on average, the health plan pays for its members. The higher the actuarial value number, the more valuable the health plan benefits are. For example, a health plan with an actuarial value of 85% will pay approximately 85% of all members’ covered healthcare expenses.

Members are expected to pay the other 15% of their covered healthcare expenses via cost-sharing requirements like deductibles, copays, and coinsurance (but understand that this is across an entire standard population; the percentage of costs that the plan pays for a specific member will depend on how much medical care the person needs during the year).

To discover the actuarial value of the health plans available through your job, you’ll have to ask. Your employee benefits or human resources department is the place to start. Another option is to call the customer service number for the job-based health plan you’re considering and get the actuarial value from a health plan customer service employee.

Step 2—Compare Job-Based Health Plan and Obamacare Plan Actuarial Values

Once you know the actuarial value of the job-based health plan your employer is offering, pick a plan or two of a similar actuarial value from your Obamacare exchange. You can tell an Obamacare plan’s actuarial value by its metal-tier.

• Bronze health plans have an actuarial value of approximately 60%.
• Silver health plans have an actuarial value of approximately 70%. (But if you're eligible for cost-sharing reductions—CSR—the actuarial value of a Silver plan might be much higher than 70%. This will depend on your income, but it can be as high as 94%.)
• Gold health plans have an actuarial value of approximately 80%.
• Platinum health plans have an actuarial value of approximately 90%.

So, if the job-based health insurance your employer offers has an actuarial value of 72%, you’d pick a couple of Silver-tier Obamacare plans to compare it with since Silver plans have an actuarial value close to your job-based plan.

By comparing health plans of similar actuarial values, you’re ensuring that you’re comparing apples to apples. If you compared a 90% actuarial value health plan available at work with a 60% actuarial value exchange-based health plan, it would be an inaccurate comparison.

(To be clear, there's nothing wrong with switching to a plan with a significantly different actuarial value, as long as you understand that it's not an apples-to-apples comparison.)

Step 3—Determine Your Costs for Obamacare and Job-Based Health Insurance

Job-based health insurance usually includes a substantial premium subsidy from your employer. Your employer pays part of the monthly cost of your health insurance, and you pay part. Your part is usually taken out of your paycheck pre-tax so you don’t pay income taxes on it. (On average, employers pay 83% of the cost of employee-only coverage, and 73% of the cost of family coverage, but this varies considerably from one employer to another.)

Ask your employee benefits or human resources department how much your contribution toward the cost of your health insurance premiums will be each month if you choose job-based health insurance.

To determine your cost for Obamacare health plans, you’ll have to go back to your health insurance exchange. You can get pricing information without creating an account or providing identifying information.

(Here's the plan browsing tool for HealthCare.gov. If you're in a state that doesn't use HealthCare.gov, that tool will direct you to the correct website when you enter your zip code.)

Since exchange-based health plans (like all individual market plans) are allowed to alter their premiums based on your age, where you live, and whether or not you smoke, you’ll have to enter this information into the online health insurance exchange portal before you’ll be able to get any pricing information. But you're not required to create an account with the exchange in order to do this.

Although Obamacare health insurance is subsidized for most enrollees, it’s not likely to be subsidized for you. If you’re offered health insurance by your employer, you’re not eligible for an Obamacare subsidy unless the health insurance your employer offers is exceptionally lousy or unaffordable.

In this instance, exceptionally lousy means your job-based health plan has an actuarial value of less than 60%, or doesn't provide substantial coverage for inpatient and physician services.

Your employer’s health insurance would be considered unaffordable if your share of the cost for coverage is more than 9.12% of your household income in 2023.

You might qualify for the premium tax credit health insurance subsidy to help pay for health insurance you buy from an exchange if the following are true:

• Your income is at least 100% of the federal poverty level (or more than 138% of the poverty level if you're in a state that has expanded Medicaid, which includes most states).
• The health insurance your employer offers does not provide minimum value, and/or your share of the premiums for job-based health insurance is not considered affordable based on your income.

But it's very uncommon for an employer-sponsored plan to not provide minimum value and/or to be considered unaffordable for the employee's portion of the coverage. If your employer offers coverage, chances are you're not going to qualify for subsidies in the exchange.

However, if you do meet the criteria for subsidy eligibility, the best way to determine your cost for the Obamacare plans you’re comparing with your job-based health plan is to enter your income into the exchange's quote tool and get an estimate of how much the health plans would cost based on your income.

You can then choose to apply for subsidized coverage through your health insurance exchange. Creating an account with the exchange and applying for financial assistance does not obligate you to buy the health insurance or accept the financial aid.

You can still decide to choose your employer’s health plan instead (assuming you're within your initial enrollment window or the employer's annual open enrollment period, or you've experienced a qualifying event that triggers a special enrollment period).

If you're not eligible for an Obamacare subsidy, you can just look at the full-price premium for the individual market plans you're considering. You can get these prices from the exchange or directly from an insurance company (and a broker can help you get that information, regardless of whether you're looking at plans in the exchange or plans sold directly by insurance companies).

Step 4—Compare the Cost of Obamacare vs. Job-Based Health Insurance

Once you’ve found how much you’ll have to pay each month for your job-based health insurance as well as for the Obamacare plans you’re comparing to it, you’re almost done.

If one plan is dramatically less expensive than the others, since they’re all of similar actuarial values, the less expensive plan might be the one that gives you the best bang for your buck. But keep in mind that other factors, such as the provider network and the covered drug lists, could mean that a more expensive plan might be the one that best fits your needs.

If your cost for all of the plans is relatively similar, then you can base your decision on the health plan structure you like best. Evaluate the best fit for your needs by looking at:

• The type of health plan (HMO, PPO, EPO, or POS plan)
• How the cost-sharing is structured
• The health plan’s provider network
• The health plan's drug formulary
• Health plan quality and satisfaction ratings

If you like the freedom to go out-of-network and you’re willing to pay more when you do, consider a PPO or a POS plan. If you don’t mind staying in-network to keep your costs low, an HMO or EPO might serve you well.

(But pay attention to out-of-pocket costs for out-of-network care on plans that cover it. You might find that the out-of-network deductible is so high that you'd need a great deal of out-of-network care in order to start getting benefits from your health plan.)

If you don’t have any savings or can’t afford to pay a large deductible, a health plan with a lower deductible but higher copayments or coinsurance rates might make you feel more comfortable.

If you have your heart set on keeping your current primary care physician (PCP) or specialist, check each health plan’s provider network. Before committing to the health plan that includes your PCP in its network, call the doctor’s office to confirm they’re still in-network with that health plan and that they’re not planning on dropping out of its network any time soon.

If you take prescription medications, check each health plan's drug formulary to make sure your specific prescription drugs are covered.

If you're interested in contributing to a health savings account (HSA), pay attention to the HSA-qualified high deductible health plans (HDHPs) that are available to you. You'll need to be enrolled in one in order to make contributions to an HSA.

Lastly, check the quality and satisfaction ratings for the health plans you’re considering. You can do this with the health plan report cards available on the National Committee for Quality Assurance’s website. All other things being equal, if one has great ratings while another has poor ratings, the decision will be easier.

Understand the Family Glitch Fix

Keep in mind that in most cases, you're going to find that your employer's plan is the best choice. This is due in large part to the fact that your employer will be paying a chunk of the premium, whereas it's extremely unlikely that you'll get any financial assistance with an individual market plan.

(This is assuming you continue to have access to the employer-sponsored plan. If you're doing this comparison to see how you'll fare if you become self-employed or retire early, you can disregard the employer subsidy and check your eligibility for subsidies in the individual market based solely on your household income.)

Unless there are significant additional factors, such as network coverage, that impact your decision, the cost of the individual market plan is likely to be quite a bit more than the cost of your employer's plan.

But the situation for your family members might not be so clear-cut. As of 2023, you might find that they're eligible for a premium subsidy in the Marketplace (for an individual/family plan), even if you're not.

This is because the Biden administration finalized a fix for the "family glitch" that took effect in 2023. Here's how it works: When a family has access to employer-sponsored health insurance, two affordability calculations are made—one for the employee and one for the whole family.

If the employee's coverage is considered affordable (i.e. it's not more than 9.12% of household income in 2023), the employee is not eligible for Marketplace subsidies. But if the cost for the whole family is not affordable (i.e. costs more than 9.12% of household income in 2023), the rest of the family could potentially be eligible for subsidies in the Marketplace.

Whether or not they're actually eligible will depend on their age, income, and location. Here's more about how subsidy amounts vary when family members are covered under different health plans.

If an employee's family members are eligible for subsidies under the family glitch fix, they have to decide whether it's worth splitting the family onto two separate plans (employer-sponsored coverage for the employee, and exchange coverage for some or all of the rest of the family).