The amount of health plan competition varies tremendously around the country, with more rural areas generally having fewer plans, particularly in the individual or non-group market. Overall, a majority of health insurer markets are highly or super-concentrated,1 with potentially ill effects for consumers.
The competitive landscape becomes even more important for smaller purchasers of health plans—small businesses and individuals. Unlike very large payers, these purchasers represent little patient volume and have little ability to effect the marketplace—they are essentially price takers.
The Affordable Care Act was intended to enhance insurer competition in the small group and individual markets. Various reforms are designed to give consumers a shot at comparing health plans "apples-to-apples"—giving insurers have more incentive to compete based on value, instead of using marketing or other techniques that may steer purchasers to low-value coverage. The subsidies associated with ACA coverage expans demand for insurance, increasing the attractiveness of the market. Furthermore, requiring subsidized enrollees to pay the full difference between higher-cost plans and the benchmark plan should lead to strong competition among insurers. New pooling and rating rules helped create a more level playing field for health plans. States operating their own Marketplaces or exchanges have a lot of latitude in how they operate and can use a big tool set to improve market functioning.2
States with fewer insurers and less competition may lean towards a more active purchaser approach,3 using the purchasing power of an exchange to counteract the market power of one or a few large insurers. On the other hand, in a state with just one dominant insurer, it could be difficult for an exchange to threaten excluding that insurer from participating in the exchange. An approach that states should consider is a public option.
Rate review and Medical Loss Ratio requirements are other, potentially powerful tools state policymakers can use to improve the functioning of health insurer markets.
1. Fulton, Brent D., Daniel R. Arnold and Richard M. Scheffler, "Market Concentration Variation of Health Care Providers and Health Insurers in the United States," Commonwealth Fund (July 30, 2018). See also American Medical Association, "Competition in Health Insurance: A comprehensive study of U.S. markets," (2018); and Kaiser Family Foundation, "Market Share and Enrollment of Largest Three Insurers - Individual Market," (2018).
2. Schwab, Rachel and JoAnn Volk, "States Looking to Run Their Own Health Insurance Marketplace See Opportunity for Funding, Flexibility," Commonwealth Fund (June 28, 2019).
3. Quinn, Mattie, "How California Keeps Health Premiums Down Like No Other State," Governing (May 10, 2016).