Will Obamacare force insurers to compete? The White House thinks so.

May 30, 2013

Forget the Obamacare "train wreck": The Obama administration thinks the Affordable Care Act is right on track.

The key, they believe, is competition between insurers. More than 120 health insurance plans have applied to sell on the federally run health insurance exchange, according to a White House memo published Thursday. One-quarter of those applicants are new competitors in a state's individual insurance market.


President Obama greets doctors in the Rose Garden following an event at the White House. (Win McNamee/Getty Images)

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, these insurers would need to offer coverage in all 50 states.

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 estimates that "90 percent of target enrollees will have five or more different insurance company choices."

But as even the White House admits, what matters isn't 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 a individual market' buyers. 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.

 

What's more difficult to know, however, is how many other plans compete in those insurance markets. Administration officials acknowledged that a state with one dominant carrier could have more than a dozen really small health insurance plans, who cover a single-digit sliver of the individual market.

A report published this year by analysts at Citi Research found that it's not unusual for a state to have dozens of plans competing – but many only covering a handful of subscribers.

We don't know whether the Affordable Care Act creates the tools to change that dynamic – whether an individual carrier remains dominant on the health exchanges, or if its competition starts cutting into its overwhelming market share.

The White House thinks it will. Officials there contend that the health insurance exchanges, online portals akin to Expedia, will give insurers an even playing field to compete on. Consumers shopping in these new marketplaces will see health plans lined up against each other, organized by monthly premium cost. Market share, the thinking goes, is less of a factor for consumers seeking the best deal.

Whether a non-dominant carrier can offer a really good deal, however, remains to be seen. Companies that want to enter a new health insurance market need to set up an entire network of hospitals and doctors who agree to see their new enrollees. Large health plans tend to use their really big subscriber base to negotiate lower payments to providers – which can then translates into lower premiums on the exchange.

Many health insurance companies expect to run a marketing campaign  to woo millions of new potential customers, which could end up as a big differentiating factor between small plans and their larger competitors.

There is certainly evidence of some health plans weighing their options and deciding that, in this new marketplace, they have a better business opportunity. In California, for example, four of the 13 plans selling on the exchange are new entrants to the insurance market.

At the same time, others appear ready to sit out the new marketplace as it gets up and running. In New Hampshire, a state that has four insurance plans selling in its individual market, just one has expressed interest in selling on the exchange. That would be Anthem Blue Cross Blue Shield, which currently controls about 90 percent of the individual market.

The new marketplace, a top official at the New Hampshire Insurance Department told me this week, just didn't seem to change the calculus for its smaller carriers.

“We expect the exchange to look a lot like our individual market, where there’s one carrier with about 90 percent of the business,” says Alex Feldvebel, deputy commissioner at the New Hampshire Department of Insurance. “It’s not very surprising that in New Hampshire, there might be only one carrier offering coverage through the exchange.”

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Brad Plumer · May 30, 2013