Competition among insurers offering coverage through federal exchanges established under the Affordable Care Act is driving down the premiums charged in the new marketplaces by as much as one third, according to a Bloomberg Government analysis.
The analysis of rates for individual policies in the 36 states where the federal government will run or largely run the exchanges shows an unmistakable pattern: The larger the number of insurers operating in a given market, the lower the price of coverage.
The pattern appears to hold no matter what the age of insurance enrollees or which “metal” level of coverage they choose.
To encourage comparison shopping, the health law requires insurers that sell through exchanges to offer plans that cover the same broad set of medical benefits at a few preset levels of cost. “Bronze” plans cover 60 percent of expected medical costs and so on, up to “platinum” at 90 percent.
Rates released by the Department of Health and Human Services (HHS) show that the price of policies offered in “rating areas” with 10 or more participating insurers are between 31 percent and 35 percent lower than those for the same policies in areas with only one issuer.
A preliminary review of rates in the remaining 14 to 16 states and the District of Columbia that will run their own exchanges suggests that a similar pattern holds in most.
The pattern shows that at least for 2014 exchanges probably will live up to one of their advocates’ key claims: that the ACA can expand coverage while constraining costs.
Whether the new online marketplaces can maintain their early record on rates remains an open question. If, for example, mostly unhealthy people sign up for exchange policies, raising insurers’ costs and thus assuring that carriers hike their rates for 2015, competition may not do enough to keep coverage affordable for most people, even with planned government subsidies.
Still, the pattern for 2014 is striking for a number of reasons.
First, it shows the effect of competition in a market that has seen almost none until now — that for individual health insurance policies.
Second, exchanges, which got off to an uneven start last week, are new and untested. Their launch is being accompanied by new market rules that require, among other things, insurers to take all comers no matter their health condition. When such rules have been tried in the past, they’ve often saddled carriers with big and unexpected costs. Under such circumstances, insurers might have been expected to demand extremely high prices.
The Bloomberg Government analysis looked at the monthly premiums that insurers will charge in more than 400 rating areas, or sub-state zones where carriers are allowed to adjust their prices based on such variables as the cost of medical care, across the 36 states where the federal government will be largely responsible for operating exchanges.
Rates can be compared by issuers or by the various plans that each issuer offers. The analysis zeros in on issuers on the theory that competitive pressures are most likely to occur between companies, not between plans offered by the same company.
The analysis sorted the rates by the number of issuers selling in a rating area, grouping together all of the rates for one-issuer areas, two-issuer areas and so forth.
The first accompanying chart shows the results for a 40-year-old individual buying a low-cost, low-dollar coverage bronze plan. The age was chosen because it’s in the middle of the range of those expected to use exchanges. In largely focusing on bronze plans, Bloomberg Government is following the lead of HHS, which expects a substantial share of plans sold through exchanges to be bronze.
The trend is nearly identical for a 27-year-old or a 54-year-old, or for a silver or gold plan. (Insurers apparently are offering no platinum plans, at least through federally controlled exchanges.)
The picture also is similar in many, but not all, states. To illustrate, the second chart compares rates in Florida’s 21 rating areas.
Of course, other factors besides competition influence the rate decisions of insurers, for example, the cost of medical care in a state or rating area that affects the dollar amount of claims issuers receive. But these factors tend to drive the rates of various insurers together, not apart, making the evidence of competition among issuers all the more striking.
To be sure, there are some outliers. While many states follow the Florida pattern, in some, such as Texas, rates cluster within a narrow ban, no matter how many issuers are participating.
Still, the pattern of the greater the number of issuers, the lower the price shows up with remarkable regularity across the spectrum of age, plan type and geography — early evidence that exchanges may be able to make good on the promise of delivering cost-constraining price competition even as they expand coverage.
Peter Gosselin is a senior health-care policy analyst with Bloomberg Government. This insight originally appeared Oct. 7 for BGOV subscribers.