Areas with more insurer competition have lower premiums, study shows

When more insurers participate in a state or regional individual marketplace, premiums fall, according to an analysis of 2020 and 2021 data by the Urban Institute.

The national average benchmark premium in Affordable Care Act marketplaces slightly declined for the third year in a row, falling by 1.7% in 2021. Meanwhile, employer-sponsored marketplace premiums have increased over the same period. However, there is some state-by-state variation in that pattern: seven states saw premiums decline by less than 6%, with 10 more states experiencing double-digit decreases from 10% to 34% within ACA marketplaces. Researchers at the Urban Institute say the reduced premiums are a product of insurers flocking to ACA marketplaces, increasing competition, and new reinsurance programs in states like Colorado and Pennsylvania.

The ACA marketplaces haven’t had any issues attracting insurers after a rocky start that had many experts worried about whether the ACA would survive, said John Holahan, a fellow at the Urban Institute and one of the study’s authors.

“I hope this provides information out there that marketplaces are becoming increasingly stable for insurers to come in and provide coverage,” he said.

Despite insurers like Humana and Aetna leaving the marketplace in 2017, Holahan said many recognize it presents a viable business opportunity, with insurers like Centene and UnitedHealthcare entering the marketplaces in a “big” way. Cigna Health and Oscar have also expanded their footprint to participate in the heightened levels of competition. But, getting these insurers out to rural areas has been difficult, he said. Many rural regions are dominated by one insurer, such as Blue Cross Blue Shield, in states like Oklahoma and North Carolina, making premiums relatively high.

In a rating area with one or two participating insurers, researchers found benchmarks to be $148 and $114 per month higher than markets with five or more insurers, respectively. Similarly, in an area with three or four participating insurers, benchmark premiums were $45 per month higher than those in regions with five or more. Sixteen states have premiums below $400, and 10 states have premiums above $500. For example, new Hampshire’s 2021 premiums are $321 per month compared to Wyoming’s average rate of nearly $800 per month.

Medicaid insurers that operated exclusively in the Medicaid managed care market before 2014 have also increased participation in these marketplaces, lowering premiums due to their experience setting up low-cost provider networks.

Hospital consolidation was also an indicator of lower premiums, as greater local market power makes it more difficult for insurers to negotiate lower prices.

The Urban Institute controlled for state policies like Medicaid expansion and reinsurance programs to better isolate the effects of more insurance competition, finding that these strategies are heavily associated with lower premiums and less premium growth.

Federally expanded premium tax credits and access to subsidized insurance for those with incomes above 400% of the poverty level are expected to push insurers toward greater participation—they were included in Congress’ March COVID-19 relief packaged dubbed “the American Rescue Plan.” Temporary premium subsidies in the legislation played a large role in improving ACA coverage affordability for middle- and low-income Americans. Researchers at the Urban Institute said over 5 million additional people would enroll in marketplace enrollment and reduce non-group premiums by 15% if Congress made the subsidies permanent.


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