Early assessment of competition in the health insurance marketplace

This report, requested by the Office of the Assistant Secretary for Planning and Evaluation of the Department of Health and Human Services (ASPE), analyzes competition in the Health Insurance Marketplaces created by the Affordable Care Act (ACA) in six states (Alaska, Florida, Kansas, North Carolina, Ohio, and Texas). The purpose of the study was to focus on a few states that had one or more potential indicators of “insufficient competition”—such as few insurers offering plans, low enrollment, high premiums, inadequately informed consumers, or sparsely populated rural areas—and try to understand how competition was working in these markets and what might be done to make it work better.

While the study collected quantitative data on each state’s characteristics and insurance markets, the main emphasis was on gathering qualitative information and insights into how the state marketplaces were actually functioning in practice based on discussions with key informants. In each state, a field research team engaged in discussions with various stakeholders involved in the ACA marketplaces, including: insurance carriers, providers, administrators, navigators, and local health insurance experts. The field researchers, composed of health policy and public management experts knowledgeable about these states, were drawn from a larger network set up by the Rockefeller Institute of Government in collaboration the Brookings Institution to study the implementation of the ACA at the state level.

The report describes the findings for each selected state, discusses common themes across the states, and provides some potential remedies to improve competition. Following is a brief summary of why these states were chosen and what the field researchers found: 

Alaska was chosen because its vast size and sparse, isolated population posed obvious barriers to competition among insurers; only two insurance carriers serve the state; premiums are high; and enrollment is extremely low. The study team’s discussions with the Alaska stakeholders emphasized the barriers to competition. These include high transportation costs due to lack of roads and other infrastructure in rural areas of the state. Limited numbers of providers also impede insurers’ ability to negotiate prices. While having more insurers might lead to more vigorous competition, many stakeholders believed that the market was barely large enough to enable two carriers to operate profitably in the state. The Alaska Tribal Health System was described as underfunded and not a factor in limiting enrollment on the ACA marketplaces. The team emphasized problems of lack of consumer knowledge, confusion over insurance options, and difficulty of communicating with remote populations, many of whom do not speak English.  
 Florida  Florida was chosen because the sixty-seven county-level rating areas provided a chance to study competition across areas within the state and because there is a wide variation in premiums across rating areas. Stakeholders agreed that the population of the market affected entry of insurers, with the most populous rating area studied, Miami, having fierce premium competition while the state’s most rural rating area, Key West, had few insurers and providers available. Stakeholders strongly believed that the ability to negotiate prices with providers affected both premiums and insurer interest in entering the market.  Navigators and other assistors played an important role in providing consumer assistance in an environment in which there was confusion and limited understanding of health insurance and the new law. Despite low competition in some areas, Florida had the highest percent of eligible enrolled out of these six states, likely driven by the population centers.
 Kansas  Kansas was chosen because it managed to attract four insurance companies in 2014 to compete in the marketplaces even though it is a mostly rural state (and technically there were only two insurers, with all four insurance companies being affiliated with Blue Cross Blue Shield (BCBS) or Coventry/Aetna). It had moderate levels of enrollment and low premiums compared to the national average. Stakeholders had differing views on the adequacy of competition. They had the lowest premiums among study states and attracted five insurance companies in year two, with BCBS having a forty percent market share statewide. United Healthcare and Humana also both operate in the state off the marketplaces, so some stakeholders seemed surprised that these companies had not entered the marketplace. Stakeholders also expect premiums to rise by thirty or forty percent in 2016.
 North Carolina  North Carolina was chosen because it had only a few insurers in the first year of the marketplaces, with only one in some counties, but experienced enrollment above the national average. Researchers found that competition improved after the first year of the marketplaces as a result of innovative approaches to competition, including narrow networks, tiered plan design, and risk-sharing agreements with providers. However, some rural areas are still relatively uncompetitive and have some of the highest premiums in the country, with premiums varying by as much as thirty percent across rating areas.
 Ohio  Ohio was chosen because it experienced some of the highest premiums and lowest enrollment in the country even though they had among the largest number of insurers participating.  Researchers concluded that the marketplaces were largely competitive, although there was low insurer participation and higher premiums in more rural, Appalachian parts of the state. The researchers believe that the rating areas could be restructured to better support these rural areas and provide lower premiums. Some stakeholders thought that the difficulty in negotiating affordable provider contracts contributed to high premiums. Stakeholders in the state also believe that competition suffered because of lack of a statewide enrollment and marketing effort.
 Texas  Texas was chosen because of the potential for a cross-rating area study, with the chosen rating areas having similar population but varying degrees of insurer participation. The three rating areas for study were found to have moderate levels of competition among BCBS and regional insurers. Regional insurers were able to negotiate better with providers and local health systems, leading BCBS to introduce a narrow network HMO. Premiums were also very similar across the rating areas for the lowest and second lowest silver plans, even though the number of insurers varied from two to six.

These six examples illustrate the diversity of state insurance market characteristics at the start of the implementation of the ACA and the difficulty of generalizing about the requirements for adequately competitive marketplaces. However, some common themes emerged. Across the six states, respondents consistently said consumers have difficulty understanding health insurance and purchasing and retaining marketplace coverage.  State research teams also reported a lack of outreach initiatives, even though navigators and other assistors were considered to be useful. The ability of insurers to create effective, affordable provider networks was a key determinant to success in many states. State researchers also found that the population size and density was one of the main determinants of insurer participation. Researchers also found that enrollment was driven by premium costs. This may seem intuitive; however, it has major implications for insurers in terms of their role creating affordable provider networks and ensuring that consumers know how premiums and tax credits work and are related to deductibles, co-insurance, and the composition of provider networks.

Recommendations to improve competition emerged from the state reports and consultations with the field researchers. One such mechanism was to encourage insurers to co-brand and risk-share with established health care provider systems as a way to obtain price concessions for their marketplace plans.  It may also be useful to have navigator/assistor organizations provide culturally and linguistically sensitive, simple explanations of health insurance that also remind people of the need to have coverage to protect themselves and their families.  Emphasis on available subsidies and rising penalties should also be stressed.  Given the knowledge and experience of agent/brokers, it was also suggested that strategies should be devised to motivate them to service the marketplaces, such as providing them with larger fees or commissions for enrolling eligible participants. Because of the limited nature of this study and small sample, any of these remedies would need to be vetted more fully with stakeholders, and it would be helpful to more thoroughly review past experience with similar solutions.