Exchange Premiums and Number of Insurers

The federal reform law, with its individual mandate, insurance exchanges, subsidies, Medicaid expansion, and on and on, has been controversial from the start and has not delivered what its proponents said it would.  This is particularly true with regard to premiums on the insurance exchanges, which were supposed to be a primary source of health coverage for those persons who did not have employment-based health benefits.  The premiums have been much higher and grown much faster than predicted and many insurers have dropped out.  A study in Health Affairs confirms the rather obvious link between high premiums and the presence of monopoly insurers on an exchange.  So much for economies of scale that benefit the consumer.   (HA Article)   Both 2017 and 2018 saw very large average premium increases, but these varied substantially across the country.  The author compared premium growth with enrollee health status, provider market structure and health plan market structure in the 35 states with federally-facilitated exchanges.  40% of the rating areas in these exchanges had only one insurer participating.

The headline result is that monthly premiums in 2018 for the second lowest-cost silver plan (the benchmark for subsidies) were $180 more, or 50% higher, in a rating area with only one health plan than it was in an area with at least two insurers.   The premium was 21% higher in a rating area with only two insurers than in one with more than two.  States with the highest premiums also tended to have the fastest rates of premium growth.  22% of enrollees lived in an area with only one insurer in 2018.  Rating area average health status appeared to have little impact on premium level or growth.  Somewhat surprisingly, provider market structure also did not seem to have a large effect on premium levels.  Now why an area ends up with only one insurer is another interesting issue.  Many plans had trouble figuring out how to price these plans.  The people with the most health needs were most likely to buy health insurance, and the healthier people just ignored the mandate.  This caused losses for some plans and they dropped out.  It wasn’t necessarily the most efficient plans that remained in the marketplace, so that added to the premium rises.  But, in general, in any market, if you don’t have choices, prices are going to be higher.