This issue brief from the Urban Institute and Georgetown University Health Policy Institute examines health insurer participation and competition in six states – Colorado, Maryland, New York, Oregon, Rhode Island, and Virginia – that are establishing health insurance exchanges under the Patient Protection and Affordable Care Act. The issue brief was funded by the Robert Wood Johnson Foundation as part of the foundation’s support of its State Health Reform Assistance Network.
The authors of the issue brief reviewed statutes, regulations and guidance across the six states and conducted interviews with 22 informants between March and April 2013. All six states are being very accommodating to health insurers in a number of areas including network adequacy and service areas. Moreover, states have not been particularly aggressive in negotiations over premiums, rather deferring to the existing rate review process and letting the market determine rates. Most states expect most commercial insurers to participate in the exchange and most states expect some Medicaid-only insurers to participate in exchanges. In addition, many carriers offer both commercial and Medicaid plans, and many expect that the plans these carriers offer in exchanges are likely to be closer to Medicaid products.
It is expected that markets will be fairly competitive. While there is caution expressed by many insurers, the strong incentives to be the second-lowest cost plan is expected to lead to reasonably priced premiums, at least after the initial transition. Commercial carriers have the strong advantages of brand recognition and broad provider networks, but in general they are more expensive because of higher provider payment rates. It is expected that they will have negotiate lower provider payment rates or have more limited networks than their commercial offerings. Medicaid plans will have the advantage of lower payment rates, though these are likely to be negotiated upward. The overall expectation is that the competition in exchanges will lead to provider payment rates somewhere between commercial and Medicaid rates, as well as more limited networks than in similar commercial markets.
However, there remains a great deal of uncertainty about how to set premiums. In part this reflects the many new requirements that carriers face, including the essential health benefits, actuarial value tiers, guaranteed issue, and rating rules, as well uncertainty about the health status of enrollees. Some plans will focus on avoiding losses, others will bid aggressively in order to gain market share. The expectation is that plans need to better understand the health characteristics of enrollees, as well as the effectiveness of risk corridors and risk adjustment mechanisms. Once they are assured, pricing is likely to become more aggressive.
The issue brief’s overall conclusion is that there will be robust competition in many states and this will lead to reasonably priced premiums, with lower premiums for unsubsidized enrollees and lower subsidy costs to the federal government.