Insurer competition in rural areas: A bipartisan challenge

Patients in a waiting room

In 2017, 1,021 counties—about a third of the counties in the U.S.—had only one insurer offering plans on their health insurance market place set up by the Affordable Care Act (ACA). This lack of choice was disproportionately concentrated in rural America: 41 percent of enrollees in non-metro counties had only one insurer on their marketplace, compared to 21 percent of enrollees overall.

If more insurers withdraw from the marketplaces in the face of continuing uncertainty about the future of the ACA, the paucity of choice could worsen in 2018. Currently, 17 counties—16 of them rural—are at risk of being “bare” in the coming year, having no insurer at all on their exchange. Very few people live in these potentially bare counties, but they have symbolic importance that magnifies their tiny numbers.

The fact that about a third of counties (home to about 22 percent of individual marketplace enrollees) have only one insurer offering plans has become a favorite statistic among critics of the Affordable Care Act, who cite it  as evidence of the ACA’s failure to provide adequate choices.  But ACA supporters have recently turned this argument around, pointing out many of the one-insurer counties are in states with Republican leadership, inferring that Republican distaste for the ACA contributed to the lack of willing insurers.

This political tit-for-tat does nothing to address the fact that many parts of the U.S. are sparsely populated and have few health providers. Insuring Americans who live in these rural areas is a difficult no matter which party is in charge, but the challenge is especially relevant to Republicans. About 70 percent of the rural population currently lives in states with Republican leadership, and Republicans traditionally support consumer choice and market competition.  If political leaders of both parties could overcome their urge to launch partisan attacks on one another, they would recognize that the challenge of providing health insurance choices in rural areas transcends party lines. And maybe, they could get to work on solutions.

Health care inequities in rural America

Rural America has long faced severe health care inequities stemming from low population density and a shortage of health providers. As of 2013, there were about 68 primary care physicians per 100,000 people in rural areas, compared with 84 per 100,000 in urban areas. In 2010, 20 percent of rural counties had no hospital, and rural hospitals tended to be small and precariously funded. In 2007, half of rural hospitals reported having less than 50 beds, compared to 20 percent of urban hospitals.

These shortages are even more acute in specialized medicine: 20 percent of nonmetropolitan counties lack any mental health services, compared to 5 percent of metropolitan counties.  All in all, only about 10 percent of physicians practice in rural America despite a quarter of the population living there. In extreme situations, this shortage can pose a serious threat to patients’ access to care: as NPR reported earlier this month, in Bisbee Arizona, a remote county located five miles north of the Mexico border, residents are forced to drive 60 miles just to see a primary care physician.

This provider shortage poses a serious challenge to insurers, especially under the ACA. The ACA was designed to enhance competition among insurers by allowing consumers to shop for the best deal in electronic market places. At the same time, it changed the nature of insurer competition by preventing insurers from lowering prices for healthier customers or offering cheaper plans with skimpier benefits. Hence, insurers had to compete for customers by offering attractive networks of providers and lower premiums.  In rural counties with few providers, it was inherently difficult for insurers to form networks and to negotiate lower prices with providers who were often the only providers in the area.

Provider networks are a key to competition

In 2017, the Brookings-Rockefeller ACA Research Network looked in depth at exchanges in California, Florida, North Carolina, Michigan, and Texas. In all of these states, researchers found that provider networks were the key to competition, but creating such networks in rural areas is extremely difficult. Even in California, where ACA exchanges have been extremely successful overall, “generating increased competition…is more difficult in sparsely populated areas,” leaving rural counties fewer choices and higher premiums. Researchers concluded that “hospital and physician competition is essential to a robust and competitive insurer market.” In other words, the high premiums and limited competition observed in rural areas was due, at least in part, to “the number of hospitals, physician groups, and health systems that are available.”

Pre-ACA, people in rural counties were less likely to be covered by their employers and more likely to be on individual insurance policies than people in urban counties. They were also often paying more money for less coverage. With ACA essential benefit requirements, plans now available to rural enrollees must be far more comprehensive. However, since regulations have shifted the focus of insurers to provider networks, they have in the process made insuring rural counties, already a daunting task, even more challenging.

Solutions to the ACA’s challenges in rural America

The problems of insuring rural Americans were exacerbated by the Great Recession, the sequester that affected Medicare in 2013, the declining and aging population of rural areas, and the decision of some Republican-led states not to expand Medicaid.  The challenges of offering affordable health insurance to rural residents were not caused by the ACA, but they made its implementation more difficult. It’s also important to note that the rural challenge is not limited to ACA exchanges: Medicare Advantage, often cited as an example of a robust insurance market, has 148 “bare” counties without any insurer, nearly eight times the number of counties that may not have a marketplace plan in 2018.

There are a variety of potential solutions to the ACA’s rural issue which would maintain the free market approach of the law without sacrificing its consumer protections.  One obvious one would be expanding Medicaid in the 19 holdout states, many of which are predominantly rural. Doing so would cause an influx of funds for rural health care providers. This increased funding could incentivize more health providers to enter rural markets, or at least keep rural hospitals and doctors from leaving rural counties, as has been the trend of late. As discussed above, increased provider participation allows for better competition among insurers. Moreover, while expanded Medicaid would reduce the potential market size of rural counties, it would also provide coverage for lower income individuals who are typically more expensive, making marketplace pools healthier and lowering costs for insurers.  A recent HHS study estimated that expanding Medicaid lowered marketplace premiums by about 7 percent.

Another is the McCaskill bill, introduced by Senator Claire McCaskill of Missouri, which would allow residents of uninsured counties to purchase plans through the DC SHOP (small group exchange). In some respects, this plan makes a good deal of sense: many of the plans offered on DC’s small group exchange are designed for Congress and therefore have nationwide networks that could cover enrollees virtually anywhere. However, some aspects of the bill remain unclear and problematic, namely how premium tax credits and cost sharing reduction payments would be implemented. The small group exchange is not set up to calculate or administer these payments, and thus it would take significant changes to provide affordable coverage for individuals in these bare counties.

A third is the controlled sale of health plans across state lines. While completely eliminating state lines in the private health insurance market has been widely discredited, it could increase competition in some rural areas that desperately need it. Bristol, for example, is a small town divided by the Virginia Tennessee border. On the Tennessee side, residents are faced with high costs and few insurance options. Allowing these residents to purchase the same coverage as their neighbors a few blocks over would go a long way towards alleviating these concerns, as the Congressional Representative from the district, Phil Roe, noted earlier this year in a speech on the House floor. While selling insurance across state lines has limited usefulness, especially because distant insurers have little ability to create viable local provider networks, and poses some risks of competitive deterioration of insurance standards, it could help create increased competition in some rural areas where state lines artificially limit the size of the market.

A fourth approach on the opposite side of the political spectrum is a public option. Most recently introduced by Senator Al Franken of Minnesota, a public option has long been embraced by liberals as a method of stabilizing premiums and controlling competition on the ACA exchange. It has also been pitched as a protective measure for rural counties with few exchange options, a method of guaranteeing at least some level of choice. Back in 2013, the CBO scored a public option proposal and determined that such an option would cost 7-8 percent less than premiums for private plans, would increase competition, and would lower consumer cost. They did note, however, that it would have a negligible effect on the uninsured rate.

And finally, simply increasing stability in the public marketplace at-large could go a long way towards addressing the lack of competition in rural exchanges. There are a variety of ways to do this, but the most immediate standout is recommitting to cost share reduction (CSR) payments. These payments reimburse insurers for the reduction in cost sharing required by the ACA. President Trump’s recent veiled threat to end these payments has caused widespread dismay among insurers. In fact, during an earnings call in late July, officials at Anthem Blue Cross suggested they may pull out of markets across the country in response to the instability caused by the White House’s refusal to commit to CSR payments. They appear to be following through on this threat: on Monday, Anthem announced that it would be leaving Nevada’s exchange entirely, forcing its 22,000 enrollees in the state to seek new coverage.

The ACA’s struggle in rural America serves as a reminder of how complex an ecosystem health care is. The defeat of the effort to repeal and replace the ACA with only Republican votes opens an opportunity for bipartisan cooperation on crafting a sustainable system that will provide affordable coverage in all parts of America. Focusing on the special challenges of rural areas should be high on the bipartisan agenda.


Jacob Toner Gosselin contributed to this post.