Are Obamacare’s exchanges competitive? Here’s what the experts say.

May 30, 2013

One of the first tests of President Obama’s health-care overhaul is whether enough companies sign up to create competition and deliver lower prices on government-run insurance marketplaces.

On Thursday, the administration said that more than 120 health-care plans had applied to sell in the 19 state insurance exchanges that the government will run.

The White House claimed victory, arguing that the turnout ensures there will be robust competition to hold down costs.


No, not this type of competition. (Al Bello/Getty Images)

Health policy experts were more cautious, though, in characterizing insurers’ enthusiasm to sell on these new marketplaces, and what that would mean for the price of health insurance.

“I would characterize it as modest plan competition,” Caroline Pearson, vice president for health reform at Avalere Helath, said. “In most markets, there seems to be a bit more choice than what’s available in the market today. But we’re certainly not seeing a wild influx of plans into the market.”

Starting in October, each state will have a new insurance marketplace — an Expedia-like Web site where residents can comparison shop for health insurance plans. Low- and middle-income Americans may qualify for a tax credit to cover a portion of their premiums.

Seventeen states are running their own health insurance exchanges. The federal government has a role in administering the rest, either in partnership with a state or overseeing the task completely.

The White House analyzed data from the 19 states where the federal government is administering the health insurance exchange. It also included information from states running their own marketplaces that have made public data on the level of competition that they expect, such as California, Maryland and Washington.

Using that information, the White House estimated that “90 percent of target enrollees will have five or more different insurance company choices.”

“The marketplace is attracting new insurance choices and increasing competition for consumers, especially in states where it is really needed,” administration officials wrote.

The federal government is also in the process of reviewing health insurers’ applications to run multi-state plans that would, in 2014, sell insurance plans in at least 31 states. By 2017, those insurers would need to offer coverage in all 50 states.

Whether these new options will drive down premium costs remains to be seen. The White House readily admits that what matters isn’t just how many plans there are in a state, but how effectively they compete with each other to bring down costs and increase quality.

Right now, it’s not unusual for one health insurance plan to cover the majority of an individual market’s buyers even when there are dozens of smaller health plans in the same market. Seventeen states have health insurance carriers that cover more than two-thirds of the individual insurance market, according to data from the Kaiser Family Foundation.

“It’s not an easy market to enter,” Larry Levitt, vice president at the Kaiser Family Foundation, said. “You need to have to have a lot of systems in place to be an insurance company, like a provider network, and be able to compete against a known brand.”

The new health insurance exchanges, Levitt said, will help smaller insurers gain market share by displaying all insurance plans side-by-side, sorted by the cost of monthly premiums.

“It definitely makes it easier for a small plan to compete,” he said.

In California, for example, four of the 13 plans selling on the exchange are new entrants to the insurance market.

Large health insurance plans, meanwhile, have been relatively cautious in participating in the new marketplaces. Aetna has told investors that it expects to compete in about 15 state health insurance exchanges. UnitedHealth, the country’s largest health carrier, intends to sell plans in between 10 and 25 new markets.

“A lot of people are worried,” said Robert Laszewski, a former insurance executive who now consults with health plans. “There's concern that, if this is an administrative mess, only the sick people will crawl across your door and the healthy people won’t show up.”

Some small health insurance plans appear ready to sit out the new marketplace. In New Hampshire, a state that currently has four health insurers selling in its individual market, just one has expressed interest in selling on the state health exchange.

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