Five‐State Study of ACA Marketplace Competition: A Summary Report

• Date: 01 September 2017
• Author: Alice M. Rivlin,Michael A. Morrisey,Mark A. Hall,Richard P. Nathan
• Published date: 01 September 2017
• DOI: http://doi.org/10.1111/rmir.12079

Risk Management and Insurance Review

C

2017 The Brookings Institution. Risk Management and Insurance Review C

2017 The American Risk

and Insurance Association, 2017, Vol. 20, No. 2, 153-172

DOI: 10.1111/rmir.12079

PERSPECTIVE

FIVE-STATE STUDY OF ACA MARKETPLACE COMPETITION:

AS

UMMARY REPORT

Michael A. Morrisey

Alice M. Rivlin

Richard P. Nathan

Mark A. Hall

ABSTRACT

This field study sought to better understand the evolution of health insurance

competition in the health insurance exchange marketplaces in five states: Cali-

fornia, Michigan, Florida, North Carolina, and Texas.This summary highlights

key findings from each of the states and offers a series of testable hypotheses

about the evolution of these markets. Four broad themes emerged from the

analysis. First, health insurance markets are local, largely due to the necessity to

establish local networks of health care providers. Second, higher than expected

claims costs were the source of much of the turmoil in the marketplaces over

the initial 4 years. Third, there has been a substantial shift toward narrower

networks of providers, largely achieved by eliminating preferred providerplan

options. Fourth, hospital and physician competition is essential for a robust and

competitive insurer market.

INTRODUCTION

The health insurance marketplaces created by the Affordable Care Act (ACA) were

intended to broaden health insurance coverage by making it relatively easy for the

uninsured, armed with income-related federal subsidies, to choose health plans that met

their needs from an array of competing options. The further hope was that competition

among health plans on the exchanges would lead to lower costs and higher value

for consumers, because inefficient, low-value plans would lose out in the competitive

marketplace. This study sought to understand the diverse experience in five states under

the ACA in order to gain insights into the nature of competition in the private health

insurance industry and the implementation of the ACA.

Michael A. Morrisey is with Texas A&M University, Health Policy and Management, 212

Adriance Lab Road, Suite 135, College Station, TX; e-mail: morrisey@tamu.edu. Alice M.

Rivlin is with the Brookings Institution, Center for Health Policy, Washington, DC; e-mail:

Arivlin@Brookings.edu. Richard P. Nathan is with The Nelson A. Rockefeller Institute of Gov-

ernment, Albany, NY; e-mail: richardnathan55@gmail.com. Mark A. Hall is with Wake Forest

University,School of Law, Winston-Salem, NC; e-mail: mhall@wakehealth.edu.

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In spring 2016, the insurance marketplaces had been operating for nearly 3 full years.

There were numerous press stories of plans’ decisions to enter or leave selected states or

market areas within states and to narrow provider networks by including fewer choices

among hospitals, medical specialists, and other providers. There were also beginning to

be stories of insurer requests for significant premium increases.1However, there was no

clear understanding of how common these practices were, or how and why practices

differed across carriers, markets, and state regulatory settings.

This project used the ACA Implementation Research Network to conduct field research

in California, Michigan, Florida, North Carolina, and Texas.In each state, expert field re-

searchers engaged directly with marketplace stakeholders, including insurance carriers,

provider groups, state regulators, and consumer engagement organizations, to identify

and understand their various decisions. This focus included an effort to understand

why carriers chose to enter or exit markets and the barriers they faced, how provider

networks were built, and how state regulatory decisions affected decision making. Ulti-

mately, it sought to find whereand why certain markets are successful and competitive

and how less competitive markets might be improved.

The study of five states was not intended to provide statistically meaningful general-

izations about the functioning of the marketplace exchanges. Rather, it was intended

to accomplish two other objectives. First, the study was designed to generate hypothe-

ses about the development and evolution of the exchanges that might be tested with

“harder” data from all the exchanges. Second, it sought to describe the potentially id-

iosyncratic nature of the marketplaces in each of the five states. Political and economic

circumstances may differ substantially across markets. If so, it will be useful for policy-

makers and market participants to appreciate the nuances of different local settings if

programs are to be successful. What works in Michigan may not work in Texasand vice

versa. Field research of this sort can give researchers and policymakers insight into how

idiosyncratic local factors matter in practice.

In brief, the authors’ five states had 4 years of experience in the open enrollment periods

from 2014 through 2017. The authors found that the states array themselves in a con-

tinuum of apparent success in enhancing and maintaining competition among insurers.

California and Michigan appear to have had success in nurturing insurer competition,

in at least the urban areas of their states. Florida, North Carolina, and Texas were less

successful. This divergence is recent, however. As recently as the 2015 and 2016 open

enrollment periods, all of the states had what appeared to be promising, if not always

robust, insurance competition. Large changes occurred in the run-up to the 2017 open

enrollment period.

Four broad themes emerged from this study. First, health insurance markets are local. Al-

though there has been substantial attention on national carriers, their desire to merge,

and their withdrawal from selected states or market areas, the field researchers consis-

tently describe substantial differences that exist among the market areas they examined.

Insurance markets are local largely because insurers rely on their ability to establish

networks of providers to allow them to be priced competitively with other insurers. If

they are unable to negotiate acceptable prices with local hospitals, physicians, and other

1See, for example, Norris (2016) and Ogles and Hilgemann (2016).