Hands Off Health Insurance: Could Looser Restrictions on Health Insurance Plan Offerings Reduce Premiums?

The Health Insurance Marketplaces have been one of the most visible—and most scrutinized—components of the Affordable Care Act. Almost 6.5 million individuals used the Marketplaces to purchase or renew coverage for 2015. Recent analysis of the individual market found no nationwide increase in Marketplace premiums within the past year. As the Marketplaces begin their second year of operation, policymakers are attempting to learn from the past year to help determine the future of the program.

States took a variety of approaches to regulating their Marketplaces in 2014. Sixteen states and Washington, DC set up a State-Based Marketplace (SBM). The remaining states used a Federally Facilitated Marketplace (FFM), either partnering with the federal government or deferring operations to them entirely. SBMs have freedom to actively manage the plans offered on their Marketplaces. Some SBMs use a clearinghouse model of management, in which all qualified health plans offered by insurers appear on the Marketplace. Other SBMs use an active purchaser model, in which states list only plans that have been pre-negotiated with insurers. Active purchaser states can negotiate with insurers about premiums, benefit designs, and physician networks for their Marketplace offerings.

Advocates of the active purchaser model argue that negotiations help to manage premium increases and ensure that shoppers get high-value plans. A new study, however, suggests that states could use a lighter touch and let open competition between insurers control premiums on the Marketplaces. The new article by Kelly Krinn in Health Affairs examines how state strategies for managing plan offerings impacted monthly premiums in 2014.

The team collected information from the lowest-cost Marketplace plan in each of three metal tier levels of coverage: bronze, silver, and gold. A metal tier corresponds to the percentage of annual costs an insurer would be expected to cover on average. Platinum and gold plans are more expensive because insurers cover a higher percentage of costs, while bronze and silver plans are cheaper because the insurer is covering a smaller percentage of the costs. They also collected data on the second-lowest cost plan in the silver tier. This plan, also known as the benchmark plan, is the price point that determines the level of federal subsidies provided to shoppers below a designated income level.

Krinn and colleagues then collected population and demographic information about each state geographic rating area to provide the regional context of the premiums. The team also calculated measures of insurer and hospital competition to see how market power impacted premiums in each area. Finally, the researchers grouped each state according to its strategy for managing plan offerings. The team separated SBMs by whether they used a clearinghouse or active purchaser model. All FFMs use a clearinghouse model.

Krinn finds that premiums in SBMs under the clearinghouse model were lower than under the active purchaser model for all metal tiers. The premiums were also lower than any FFM or partnership arrangement. Premiums for bronze-level plans were nearly $20 lower in clearinghouse SBMs than in active purchaser SBMs. This difference was approximately $28 for the lowest-cost silver plan, $40 for the benchmark plan, and $33 for the lowest-cost gold plan.

The team also finds evidence that competition and demand impact premiums as well. Premiums were lower in areas where more insurers were offering coverage and where hospital competition was high. Premiums were higher in urban areas with populations over 100,000, which the authors attribute to increased demand for plans in those areas.

The authors note that the study has limitations given that the Marketplaces have only been in operation for one year. Active purchaser states may not have had time to fully engage in negotiations with insurers due to time and staffing constraints. Additionally, states willing to set up their own Marketplaces likely have larger infrastructure and capacity. This facilitates monitoring premiums and regulating insurers regardless of the plan management strategy.

Still, this study suggests that competition could play a key role going forward in keeping premiums low. Rather than use heavy-handed negotiations, states could let the Marketplace itself moderate insurers by forcing them to sell high-value plans to win customers. States will continue to monitor changes in the market over time, but this research makes the case that when insurers compete in the open, the consumers win.

Article Source:  Kelly Krinn, Pinar Karaca-Mandic, Lynn A. Blewett, State-Based Marketplaces Using ‘Clearinghouse’ Plan Management Models are Associated With Lower Premiums, Health Affairs, January 2015, 34(1): 161-169.

Featured Photo: cc/(Mercy Health)