Premiums higher where less competition: what can be done?

Austin Frakt links to Peter Gosselin who provides the following analysis of premiums by number of insurers in States with federally run marketplaces; they are lower with more competition:

Plenty of caveats and this is an early look, but it shows higher premiums in States like North Carolina with little competition among insurance companies. This is an old story in North Carolina, where only two insurers are selling plans in the marketplaces, and only Blue Cross Blue Shield is selling in all 100 counties.

A couple of thoughts:

  • This shows the limits of what the ACA can do in a short period; in States with a dominant insurer prior to the ACA (like BCBS NC, with about 75% of group sales, and 90% of individual ones), they are likely to have a similar situation afterwards.
  • While N.C. certainly has little competition among insurance companies, there is some evidence that too many choices leads to sub-optimal consumer choices, at least for Medicare Advantage beneficiaries, especially those with cognitive limits. We certainly don’t have too many insurance companies selling plans, but a state-run exchange could take a closer look at the optimal number of plans; a quick look shows BCBS NC offering 24 plans in my zip code in Durham for family coverage when I put in our information. Duke University’s employer provided insurance, by comparison, provides only 4 choices of plan.
  • Health insurance premiums in North Carolina’s federally run marketplace are almost certainly higher due to the decision of the State not to expand Medicaid, which keeps cost shifting a larger concern. There is likely both an actual impact of this, as well as what I would call a “negotiating impact” of this in which an insurer will appeal to this issue to justify higher rates (as will providers when negotiating rates with said insurer). I’d love to see a precise estimate here, but I don’t have one to offer.
  • What can be done? One answer is to incentivize new insurers to enter the North Carolina marketplace. I am not really sure how to do this. Another possibility it to add a public option that is based on ability to set prices, most simply achieved via Medicare. This could be especially important in more rural parts of the State where developing a provider network from which to bid in the exchange would be particularly hard for newcomer companies. Note: I don’t think a public option is worth doing sans rate setting, at least to start. Another, more distant possibility (meaning it would require modification of the ACA) is that in some States that appear to have a “natural monopoly” or maybe just a few sellers of insurance, they could come to be viewed like public utilities and therefore have rates regulated, presumably by a more robust state-based exchange mechanism.

I am not sure what the health system will look like in 10 years, but the move ahead with the ACA is the event that broke the logjam that was the status quo.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

One Response to Premiums higher where less competition: what can be done?

  1. Pingback: Banking on failure | PoliticsNC

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