• Chart of the day: A first look at competition in the exchanges

    Peter Gosselin of Bloomberg:

    Competition among insurers offering coverage through federal exchanges established under the Affordable Care Act is driving down the premiums charged in the new marketplaces by as much as one third, according to a Bloomberg Government analysis.

    The analysis of rates for individual policies in the 36 states where the federal government will run or largely run the exchanges shows an unmistakable pattern: The larger the number of insurers operating in a given market, the lower the price of coverage. […]

    Rates released by the Department of Health and Human Services (HHS) show that the price of policies offered in “rating areas” with 10 or more participating insurers are between 31 percent and 35 percent lower than those for the same policies in areas with only one issuer.

    A preliminary review of rates in the remaining 14 to 16 states and the District of Columbia that will run their own exchanges suggests that a similar pattern holds in most.

    rates-num insurersGranted, the analysis does not control for other factors that might be correlated with both market structure and premiums. For one thing, the market structure of providers may matter. A dominant, must-have hospital system might command higher prices and engage in exclusionary contracting with insurers, simultaneously driving up premiums and reducing the number of insurers that can play in the market. This is speculative, but you get the idea. Other stuff may matter.

    Trust me, we’ll be seeing many more studies of the new marketplaces in the coming years, both crude and sophisticated. This is a worthwhile and provocative first look.


    • I’d be curious to know if the competitive pressure on prices is affected by the administration’s decision not to allow window shopping on the federal exchanges, unlike some of the state run exchanges that do allow window shopping. As Frakt points out, there are many variables, including some very local variables, but just the same I’d like to see a comparison of the prices on the federal exchanges and the prices on state run exchanges that allow window shopping.

    • So, can you speculate on why some markets attract more insurers? It is a combination of state size and lack of picky state rules? Or is it more based on the health of the population?

    • There is an interesting piece of data missing from this that would perhaps add some insight.

      I saw somewhere – think it was Indiana – but will do some googling to see if I can find it again some info on rates requested and granted. I am wondering if the states with the most participants were perhaps more willing to grant the insurers the rates the requested – or were less aggressive in reducing them. I also seem to recall one or more cases where insurers withdrew from a state when they found the rates approved to be lower than they thought would be profitable – think that was New York.

      It will be interesting to track how the rates evolve over time – there is some speculation about the initial rates being “teasers”.

    • E.g. There are large providers in the Indianapolis/Indiana area, which are still growing, that I am sure can command higher rates. There are larger insurers as well, but there is more competition.

      Are there any good studies/research on provider strength versus insurers that look at a single metropolitan area or region?

    • Areas with smaller populations, as a rule, have fewer participating insurers. Very rural ares are often completely dominated by the local Blues plan. That means in less populated areas, you typically have more market power for the health insurer than in more populated areas. However, there is a countervailing force, which is that the same goes for health systems (hospitals, etc.): in more rural areas there is often one system that dominates the market, whereas in urban areas there is more choice.

      That extra choice of health systems and insurers has not helped to control costs in the past, because in the world of employer-purchased health insurance multiple incentives led to employers choosing plans with larger networks that included the highest cost health systems (the prestige systems). So, as Austin and others have noted, having more insurers in a market was actually correlated with higher costs, not lower costs, because the hospitals retained more of their market power than insurers as the number of market participants increased.

      Now enter the world of health insurance exchanges. An individual purchasing insurance for him/herself is, we know from Massachusetts, less likely to splurge on a rich benefit, large network plan than an employer is. There are probably many reasons for this, but here is one: the employer needed a large network to meet the needs of all its employees, but the individual only needs a network that makes sense for him/herself and possibly family. The individual is more motivated to save money by going with the network that excludes the very expensive prestige hospital, and thus the asymmetrical market power of health systems is broken. Just a hypothesis, of course, but I think it does fit the evidence.

    • Curious what the further rate review will find for the state-run exchanges considering several of those marketplaces are active, competitive shoppers for insurers (California, Ore., D.C., etc.) so it could find fewer acceptable insurers but lower prices. If it doesn’t, could be a strong argument for the federally facilitated exchange passive purchasing approach.

    • I’ve poked around the humongous spreadsheet you can download from somewhere or other…

      in my state (florida) the various blue entities (1) offer a large number of plans with a wide range of premiums, often having both the lowest-price plan and the highest-price plan in the counties where there is “competition,” (2) are the only issuer/s in many counties here, and (3) appear to have their lowest-priced plans in counties where there is no other “competition.”

      the “competitors” here in florida, the ones with the ridiculously-low- price plans, appear only in the large markets and are mostly the tiny companies that nobody’s ever heard of, though occasionally Aetna or humana will offer a very-low-price plan that undercuts the lowest blues plan in one of the large counties.

      looking just at the florida data, I can’t quite replicate the results that Bloomberg got, so i’m curious about their methodology.