How much lower could Obamacare premiums be with better competition?

With much of the focus on Obamacare now on how much individual premiums could increase next year, a new analysis suggests there's one way to keep them in check — more competition. That's the conclusion of a new report from economists Leemore Dafny, Christopher Ody and Obamacare architect Jonathan Gruber.

If every insurer that had sold individual policies in 2011 participated in Affordable Care Act insurance marketplaces this past year, average premiums for a benchmark exchange health plan would have been 11.1 percent lower in 2014, the economists found.

Big insurance companies generally took a cautious approach to the new exchanges in 2014, limiting their participation in the health-care law's first year amid concerns about too many sick patients signing up for coverage. The Affordable Care Act exchanges were created as a way for people to buy their own insurance if they couldn't find affordable options elsewhere, like through an employer.

The Affordable Care Act exchanges are supposed to fuel competition in the individual market, which hasn't traditionally been all that competitive. Before the health-care law, a single insurer covered more than half of the individual market in 30 states, according to the Robert Wood Johnson Foundation.

The analysis found that the increased competition would have lowered the premiums for the second lowest-cost "silver" plan in the Obamacare exchange. That mid-level plan is significant, because it's used to determine the size of premium tax credits available in each area.

The new analysis finds that exchange premiums "are responsive to competition," but the economists caution that the really new exchanges need further study. If this new research published in the National Bureau of Economic Research is correct, then more insurers entering the exchanges in future years could serve as a check on rate increases.


(National Bureau of Economic Research)

 

Some states saw more competition than others this year, with the number of available health plans in the exchanges varying across the country — from as a few as seven in Alabama to as many as 106 in Arizona. In 2015, though, insurers have talked about slowly expanding, or at least maintaining their exchange presence.

The Kaiser Family Foundation recently examined the competitiveness of several states' exchanges since the ACA's coverage expansion launched in October, and the group found mixed results. California and New York, some of the largest exchanges, saw increased competition when compared to their respective states' 2012 individual market. Exchanges in Rhode Island and Connecticut, which also had relatively successful launches, saw less competition, KFF concluded.

This year will provide a good test case for how insurers react to the competition within the exchanges. At least one high-priced insurer in Washington state is looking to bring down rates in 2015, while the early bids show modest increases on average so far. For what it's worth, the Congressional Budget Office is expecting the average benchmark silver health plan to increase from just $3,800 in 2014 to $3,900 in 2015. The trade-off, though, is high out-of-pocket costs and narrow provider networks.

The 2015 rate-filing season, though, is just getting started.

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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