Marketplace Competition and Insurers’ Behavior under the Affordable Care Act

Introduction:

The Affordable Care Act (ACA) organizes private insurers offering individual health plans into insurance exchanges where they are required to offer benefits within standardized categories. To protect patients with pre-existing conditions, the ACA mandated premiums based on modified community rating. However, from 2014 to 2017, premiums increased while many insurers exited exchanges. This paper seeks to explain these phenomena from a market competition perspective.

Methods:

This paper uses all silver plans from Marketplace Public Use File (PUF) to assess the market concentration and insurer behaviors in Florida, where each county is its own rating area. We conducted tests of independence and constructed two sets of regression models. For the logistic model of whether a rating area has only a single insurer, predictors include: number of issuers and plans lagged one year, the previous year’s median silver premium offered in the county by the dominant issuer (Blue Cross & Blue Shield in Florida, BCBS), as well as the age-adjusted prevalence of chronic disease, rural-urban status, and 2010 population. The model also includes fixed effects for year. The generalized linear model of the individual plan’s average monthly premium started with the same independent variables.

Results:

The distributions of counties with single insurer were approximately the same from 2015 to 2018 (~ 32% single insurer, ~ 68% not). All urban counties had more than one insurer while 72.2% of the most rural counties had single insurer (p<.001). The marginal effects (ME) of one-year-lag characteristics show an increased probability of single insurer in a rating area given more hospitals, and fewer issuers and plans; but their effects are statistically insignificant. From 2014 to 2018, the number of insurers offering silver plans increased in the first year and dropped after that (12 to 14 to 6), while the number of offered plans decreased 32.2% (1576 to 1069). Meanwhile, premiums increased 77.6% ($434.59 vs. $771.69, p<0.001 on fixed effects for year). Comparing to urban counties, premiums in most rural counties were $15.75 higher (p=.002). Premiums had a predicted $0.82 decrease upon a one-unit increase in the one-year-lag number of plans (p<.001), and a $0.79 increase upon $1 increase in one-year lag median premium of the dominant issuer (p<.001). Population and prevalence of chronic diseases (e.g. cancer and diabetes) had minimal to none impacts in both models.

Discussion & Conclusion:

The changes in numbers of insurers and plans indicate wax and wane in the market competition. Higher premiums from the dominant insurer did not provide a niche for potential competitors to undercut prices but became a barrier for entry. This is likely associated with the adverse selection issue where higher-risk individuals signed up for insurance in the absence of medical underwriting. The ACA also didn’t address the issue of rural-urban disparity (urban always have access to more than one issuers and on average lower premiums). Further study should investigate approaches for reducing adverse selection, increasing access to insurance and keep market competition at proper equilibrium.