Insurer Participation in Federally Facilitated Health Insurance Marketplaces: A Closer Look at Within Rating Area Entry Decisions

Introduction: On October 1^st2013 under the Patient Protection Affordable Care Act (ACA), a new, heavily regulated insurance marketplace became active. The ACA individual mandate requires everyone to obtain health insurance meeting a baseline quality standard.  In 2012, 15.4% of Americans were uninsured and many Americans were insured by plans not meeting the standard set out by the ACA. After the implementation of the ACA, these people are likely candidates to purchase insurance through the new Health Insurance Exchanges. Insurers face tremendous uncertainty both with respect to the composition of the potential market and to the expected costs of potential enrollees.  Even with risk-adjusted transfers helping to pool risk within rating areas, there is still substantial uncertainty both in realized demand and costs. Insurers choose locations and plan designs setting premiums based on the actuarial value of the plan, taking into account local costs. Though plan design has many dimensions, we focus on insurer’s choices of markets to enter and the composition of plans types and tiers. We also explore the relationship between selective entry and premiums. We define selective entry as choosing to offer plans in some but not all counties with a rating area.

Methods: Plan information is obtained from the website for Federal Health Insurance Exchanges (FHIE), Healthcare.gov. Information on insurer, plan design and premium is collected for each available plan in the marketplace. Demographics and cost estimates are derived from Area Health Resource Files and Truven Health Analytics MarketScan^®Research Databases.

Results:Overall, 139 insurers are active in the Exchanges providing 2137 plans spread amongst the 2512 counties of the 34 participating states resulting in a total of 75838 county-plan offers. Of particular interest is the choice of insurers to selectively enter rating areas in only some of the counties. 52.9% of plans selectively enter in at least one rating area and 35.7% of the rating areas have selectively entered counties. Non-metropolitan counties have slightly higher concentration of selective plans than metropolitan counties. Counties with higher median household income and relatively young age distribution are associated with a high propensity for selective entry. The majority of plans that selectively enter are Health Maintenance Organizations whereas Preferred Provider Organizations tend to be offered non-selectively. Given the prevalence of Exclusive Provider Organizations in the Exchanges, 17.3% of them are selectively offered. Premiums are positively correlated with uninsured rates and lagged per capital medical spending while negatively correlated with concentration of insurers which is consistent with expectations. Non-metropolitans have higher premiums which likely reflect the higher costs associated with providing health care in rural areas.

Discussion: Both first-mover advantage and uncertainty of profitability affect insurers’ entry and pricing decisions. The implemented risk adjustment system reduces adverse selection within rating areas but does not guarantee insurers will make profit. Entering into this market is gamble, only after enrolment and health shocks are realized will we be able to see who are the winners and who are the losers.