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Issue Brief #4082 on Health Care

November 8, 2013

Lack of Competition in Obamacare’s Exchanges: Over Half of U.S. Has Two or Fewer Carriers

By

My guiding principle is, and always has been, that consumers do better when there is choice and competition. That’s how the market works. Unfortunately, in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company. And without competition, the price of insurance goes up and quality goes down.

—President Barack Obama, September 9, 2009[1]

Obamacare’s government-run insurance exchanges opened for enrollment on October 1, and the Department of Health and Human Services finally released information on insurance plan offerings and prices in the 34 states where the federal government is responsible for running the exchanges.

Analyzing insurer participation in both federal and state-run exchanges shows that the President’s health care law has almost completely failed to increase insurance market competition.

By the Numbers

  • In the vast majority of states, the number of insurers competing in the state’s exchange is actually less than the number of carriers that previously sold individual market policies in the state.[2]
  • At the local level, in over half of the 3,135 counties in the U.S.,[3] consumers will face an exchange market that is either a duopoly or monopoly. In 78 percent of U.S. counties, exchange enrollees will have a choice of coverage from three or fewer carriers.[4]
  • The exchange market in over 94 percent of U.S. counties will feature competition among five or fewer companies. In Alabama, about 96 percent of that state’s counties will have only one insurer offering coverage in the exchange.

Measuring Competition in the Exchanges

The most accurate measure of competition is the number of insurers offering coverage in each county or region of each state’s exchange. Insurer exchange participation at the state level, while relevant, overstates the true level of competition that consumers face, since in a majority of state exchanges, plans are offered and priced on a local basis, and few carriers are offering coverage statewide.

While each participating insurer may offer multiple plans, the number of plans offered has little significance, because most are variations on the same basic design. Since Obamacare requires all exchange plans to offer a standardized minimum level of benefits, the differences between the plans is found mostly in variations on cost-sharing levels.

The Result: Decreased Choice, Increased Cost

In 35 percent of the nation’s counties, exchange enrollees will have a choice of plans from only two insurers—a duopoly. In 17 percent of counties, consumers will have no choice—a monopoly—as only one carrier is offering coverage in the exchange. Consequently, for many Americans, real choice will be very limited in the Obamacare exchanges.

Obamacare’s mandated benefits further limit choice and lead to the standardization of insurance plans. The law’s mandates create not only a benefit “floor” but also a benefit “ceiling.” That is because insurers are unlikely to add additional benefits that would further increase costs and put them at a disadvantage compared to their competitors. The standardization of benefits combined with a lack of insurer competition means consumers in Obamacare’s exchanges will have very little choice.

The lack of competition among insurers in the exchanges also decreases pressure to keep costs down. This is in addition to significant premium increases for a majority of consumers in a majority of states from Obamacare’s added benefit requirements, new insurance rating rules, and new taxes and fees.[5]

A recent Heritage study found that 42 of the 47 states for which comparable premium data is available will see significant average premium increases—in many cases, over 100 percent—for individuals purchasing from the exchanges.[6] Competition has the ability to lower costs and improve quality,[7] but Obamacare exchanges do not achieve this goal.

Another Broken Promise

By the standards of the President’s own “guiding principle,” his law largely fails. Obamacare’s overregulation of insurance is to blame for the lack of competition in the exchanges. The flawed policies contained in Obamacare neither foster competition nor increase consumer choice, and they will continue to negatively impact American consumers and increase costs.

Instead, common-sense insurance market reforms should be implemented to increase competition and improve options for consumers as well.[8] Such a truly competitive marketplace would have the power to keep health insurance costs lower and quality higher.

—Alyene Senger is a Research Associate in the Center for Health Policy Studies at The Heritage Foundation.

Show references in this report

[1]President Barack Obama, “Remarks by the President to a Joint Session of Congress on Health Care,” The White House, September 9, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-a-Joint-Session-of-Congress-on-Health-Care (accessed November 6, 2013).

[2]Edmund F. Haislmaier, “Health Insurers’ Decisions on Exchange Participation: Obamacare’s Leading Indicators,” Heritage Foundation Backgrounder No. 2852, November 7, 2013, http://www.heritage.org/research/reports/2013/11/health-insurers-decisions-on-exchange-participation-obamacares-leading-indicators

[3]In Virginia, Maryland, and Missouri, some municipalities have been consolidated into surrounding counties. In Alaska, some boroughs, census areas, and other regions have been consolidated.

[4]Data compiled by the author. The source for the 34 federally facilitated exchanges is data from HealthCare.gov, “Health Plan Information for Individuals and Families,” https://www.healthcare.gov/health-plan-information (accessed November 6, 2013). Information for the state-based exchanges comes from either the state’s exchange or its insurance department. Ownership of subsidiaries and trade names was verified using state insurance department filings. All figures are at the parent-company level, meaning an insurer offering exchange coverage in a county through two or more subsidiaries is counted as one company.

[5]Edmund Haislmaier, “Obamacare and Insurance Benefit Mandates: Raising Premiums and Reducing Patient Choice,” Heritage Foundation WebMemo No. 3110, January 20, 2011, http://www.heritage.org/research/reports/2011/01/obamacare-and-insurance-benefit-mandates-raising-premiums-and-reducing-patient-choice.

[6]Drew Gonshorowski, “How Will You Fare in the Obamacare Exchanges?” Heritage Foundation Issue Brief No. 4068, October 16, 2013, http://www.heritage.org/research/reports/2013/10/enrollment-in-obamacare-exchanges-how-will-your-health-insurance-fare.

[7]Kevin Dayaratnya, “Competitive Markets in Health Care: The Next Revolution,” Heritage Foundation Backgrounder No. 2833, August 19, 2013, http://www.heritage.org/research/reports/2013/08/competitive-markets-in-health-care-the-next-revolution.

[8]Edmund Haislmaier, “Saving the American Dream: The U.S. Needs Commonsense Health Insurance Reforms,” Heritage Foundation Backgrounder No. 2703, June 22, 2012, http://www.heritage.org/research/reports/2012/06/saving-the-american-dream-the-us-needs-commonsense-health-insurance-reforms.

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