At the outset of the third open-enrollment period for the Affordable Care Act’s (ACA) health insurance marketplaces, the U.S. Department of Health and Human Services (HHS) reported that the number of insurance companies participating in the federally run marketplaces would remain relatively consistent from 2015 to 2016. Our close analysis of the 17 state-based marketplaces also found stable participation. Despite the struggles of many consumer operated and oriented plans (CO-OPs) and persistent market challenges, most state-based marketplaces have an equal or greater number of insurers competing for business this year.
State-based marketplaces have fostered competition by establishing rules that encourage plans to participate. These efforts have included creating waiting periods for insurers that avoided the marketplaces in their first year and requirements that align coverage inside and outside the marketplaces. Federal officials recently expressed interest in using similar techniques by reaffirming the authority of marketplaces to selectively contract with insurers. As they explore how to use this authority in the federally facilitated marketplace, it’s valuable to consider the experiences of state-based marketplaces and learn from best practices.
Insurer Participation in the State-Based Marketplaces Remains Relatively Stable
In 2016, nine of the 17 states with state-based marketplaces are experiencing no net change in the number of insurers participating, three are experiencing a net gain, and five are seeing a small decline.
When you look closely at the state-based marketplaces, participation appears more stable than some news coverage might suggest. Of the three states that are seeing a net gain in entrants, California and Kentucky (which is currently considering transitioning to a federally facilitated marketplace) are adding at least one national insurer that existed prior to the ACA, such as Aetna, as well as a new commercial insurer created after the law’s passage, such as Oscar Health. Of the five states that are experiencing a net loss, three are attributable to the closing of CO-OPs, and two are largely due to insurers’ inability to gain market share (Aetna in DC) or secure requested rates (Blue Cross Blue Shield of New Mexico). Apart from Assurant, which completely exited the health insurance market, nearly every insurer that entered state-based marketplaces in 2015 is continuing to participate in 2016.
Moreover, most insurers have remained in the marketplaces since their launch. Blue Cross and Blue Shield affiliates in nine state-based marketplaces are participating for the third straight year. So, too, are Kaiser Permanente in California, the District of Columbia, and Hawaii and Molina Health in California, New Mexico, and Washington. Some insurers are also expanding into new states or entering the marketplaces for the first time, such as Zoom Health, a Portland-based company that’s joining Oregon’s marketplace. Other large players continue to express interest in participation, including Aetna, which stated on its third quarter earnings call that the ACA and exchanges continue to represent “a big opportunity for the company,” reaffirming at a recent conference that, “…it is too early to give up on this process.”
Participation Rules—A Lever for Competition?
Participation in the marketplaces is not without challenges. The private market has long wrestled with insurer turnover, even prior to the ACA, and today, insurers continue to face obstacles as they try to identify the best products for each market and gain a better understanding of member health. For instance, many of the new CO-OPs struggled to set premiums at a level that allowed them to break into the market while accounting for pent-up demand for care, and were then stung when payments from the ACA’s risk stabilization programs came in far below expectations. Other players like Anthem say losses in their marketplace business are a result of competitors engaging in “unsustainable pricing,” while UnitedHealth Group cites higher-than-expected medical claims and enrollment outside the regular open enrollment period as key factors for revising its 2015 expectations and potentially curbing 2017 participation.
Given these hurdles, it’s important to consider what flexibility state-based marketplaces have used to address these challenges and create a sustainable, competitive environment that allows consumers to choose from multiple plan options with different networks and benefit designs. State-based marketplaces have the authority to set plan participation requirements and make key design decisions regarding marketplace structure. In some instances, states have used this flexibility to try to preserve and promote robust participation.
- For example, California officials encouraged participation by limiting future opportunities to participate in the marketplace. However, concerns about lower competition in some counties spurred the state-based marketplace to amend this preference to allow new entrants, including UnitedHealth Group, into the individual market in specific counties where there were fewer than three insurers.
- Similarly, rules in Maryland prohibit most insurers from offering products in the individual market outside of the marketplace unless they also participate in the marketplace. This requirement has allowed the state to maintain a strong level of participation since 2014, even growing its mix of insurers in its second and third years.
Looking Forward
Though we don’t yet know how much of an effect these and other approaches have had on competition, it’s clear that marketplaces, state and federal alike, have flexibility to explore a range of approaches to test what works for consumers. Though most states are in the initial stages of experimentation, they have a head start of several years on the federal marketplace officials. As HHS begins to explore a more active role in contracting with insurers, it may find value in observing the early efforts of its state partners to identify policies that show promise in promoting competition.
