Competition in the New Health Exchanges

Prior to the passing of the Patient Protection and Affordable Care Act (ACA) in 2010, a single insurer owned at least half of the individual market in 30 states and the District of Columbia. While there are upsides to having a dominant insurer (eg, ability to negotiate lower rates from hospitals and physicians), without competition in the market, there is no guarantee that the consumer benefits.

These new marketplaces under the ACA promote price competition in the individual and small group insurance markets through added transparency. Tax credits to reduce premiums and out-of-pocket costs encourage consumers to sign up for a health plan on the exchanges, thus, encouraging insurers to participate in the marketplace. These exchanges are focused on comparing premiums and plans, therefore, putting the focus on competitive price.

A recent Kaiser Family Foundation report titled Sizing Up Exchange Market Competition examined data released by 7 states indicating how the exchanges may be changing the competition in the healthcare marketplace.

The analysis was conducted by comparing early enrollment across insurers in the exchanges to market share statistics from each state’s 2013 individual market prior to full ACA implementation. The states included in the report were California, Connecticut, Minnesota, Nevada, New York, Rhode Island, and Washington. This initial analysis suggests diversity across states.

Most analyses of exchange markets examine the number of insurers participating in the marketplaces and any new entrants to the marketplace. This report also included 3 other indicators of market competition: (1) the market’s Herfindahl-Hirschman Index; (2) the market share of the largest insurer; (3) the number of insurers with >5% market share.

Two of the larger states included, California and New York, appear to be noticeably more competitive when compared to their 2012 individual markets. However, exchanges in Connecticut and Washington appear to be less competitive. The lesser effect of exchanges in Connecticut could be attributed to the lack of participation in the exchange from 2 major insurers, according to the Kaiser report. See Table (below) for breakout of state-by-state measures.

The Kaiser report indicated some limitations of the analysis, noting that the data from these 7 states is not representative of the markets in the entire United States. Also, the market indicators included reflect marketplace competition at the state level, no local level, where competition among insurers more so takes place.