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Five-State Study of ACA Marketplace Competition

February 8, 2017

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 market place. This study sought to understand the diverse experience in five states under the ACA in order to gain insights for improving competition in the private health insurance industry and the implementation of the ACA.In spring 2016, the insurance marketplaces had been operating for nearly three 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. However, there was no clear understanding of how common these practices were, nor 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 researchers 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 choose to enter or exit markets and the barriers they faced, how provider networks were built, and how state regulatory decisions affected decision-making. Ultimately, it sought to find where and 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 generalizations about the functioning of the marketplace exchanges. Rather, it was intended to accomplish two other objectives. First, the study was designed to generate hypotheses 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 idiosyncratic nature of the marketplaces in each of the five states. Political and economic circumstances may differ substantially across markets. Policymakers and market participants need to appreciate the nuances of different local settings if programs are to be successful. What works in Michigan may not work in Texas and vice versa. Field research of this sort can give researchers and policymakers insight into how idiosyncratic local factors matter in practice.In brief, our five states had four years of experience in the open enrollment periods from 2014 through 2017. The states array themselves in a continuum 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.

How Has the Affordable Care Act Affected Health Insurers' Financial Performance?

July 1, 2016

Starting in 2014, the Affordable Care Act transformed the market for individual health insurance by changing how insurance is sold and by subsidizing coverage for millions of new purchasers. Insurers, who had no previous experience under these market conditions, competed actively but faced uncertainty in how to price their products. This issue brief uses newly available data to understand how health insurers fared financially during the ACA's first year of full reforms. Overall, health insurers' financial performance began to show some strain in 2014, but the ACA's reinsurance program substantially buffered the negative effects for most insurers. Although a quarter of insurers did substantially worse than others, experience under the new market rules could improve the accuracy of pricing decisions in subsequent years.

Comparing Individual Health Coverage On and Off the Affordable Care Act's Insurance Exchanges

August 18, 2015

The new health insurance exchanges are the core of the Affordable Care Act's (ACA) reforms, but how the law improves the nonsubsidized portion of the individual market is also important. This issue brief compares products sold on and off the exchanges to gain insight into how the ACA's market reforms are functioning. Initial concerns that insurers might seek to enroll lower-risk customers outside the exchanges have not been realized. Instead, more-generous benefit plans, which appeal to people with health problems, constitute a greater portion of plans sold off-exchange than those sold on-exchange. Although insurers that sell mostly on the exchanges incur an additional fee, they still devote a greater portion of their premium dollars to medical care. Their projected administrative costs and profit margins are lower than are those of insurers selling only off the exchanges.

How Insurers Competed in the Affordable Care Act's First Year

June 24, 2015

Prior to the Affordable Care Act (ACA), most states' individual health insurance markets were dominated by one or two insurance carriers that had little incentive to compete by providing efficient services. Instead, they competed mainly by screening and selecting people based on their risk of incurring high medical costs. One of the ACA's goals is to encourage carriers to participate in the health insurance marketplaces and to shift the focus from competing based on risk selection to processes that increase consumer value, like improving efficiency of services and quality of care. Focusing on six states—Arkansas, California, Connecticut, Maryland, Montana, and Texas—this brief looks at how carriers are competing in the new marketplaces, namely through cost-sharing and composition of provider networks.

The Federal Medical Loss Ratio Rule: Implications for Consumers in Year 3

March 26, 2015

For the past three years, the Affordable Care Act has required health insurers to pay out a minimum percentage of premiums in medical claims or quality improvement expenses—known as a medical loss ratio (MLR). Insurers with MLRs below the minimum must rebate the difference to consumers. This issue brief finds that total rebates for 2013 were $325 million, less than one-third the amount paid out in 2011, indicating much greater compliance with the MLR rule. Insurers' spending on quality improvement remained low, at less than 1 percent of premiums. Insurers' administrative and sales costs, such as brokers' fees, and profit margins have reduced slightly but remain fairly steady. In the first three years under this regulation, total consumer benefits related to the medical loss ratio—both rebates and reduced overhead—amounted to over $5 billion. This was achieved without a great exodus of insurers from the market.

What's Behind Health Insurance Rate Increases? An Examination of What Insurers Reported to the Federal Government in 2013-2014

January 20, 2015

The Affordable Care Act requires health insurers to justify rate increases that are 10 percent or more for nongrandfathered plans in the individual and small-group markets. Analyzing these filings for renewals taking effect from mid-2013 through mid-2014, this brief finds that the average rate increase submitted for review was 13 percent. Insurers attributed the great bulk of these larger rate increases to routine factors such as trends in medical costs. Most insurers did not attribute any portion of these medical cost trends to factors related to the Affordable Care Act. The ACA-related factors mentioned most often were nonmedical: the new federal taxes on insurers, and the fee for the transitional reinsurance program. On average, insurers that quantified any ACA impact attributed about a third to these new ACA assessments.

Connecticut: Baseline Report - State Level Field Network Study of the Implentation of the Affordable Care Act

October 15, 2014

This report is part of a series of 21 state and regional studies examining the rollout of the ACA. The national network -- with 36 states and 61 researchers -- is led by the Rockefeller Institute of Government, the public policy research arm of the State University of New York, the Brookings Institution, and the Fels Institute of Government at the University of Pennsylvania.Connecticut demonstrates how well even a smaller state can do in implementing health insurance reform through its own exchange. Broad political and industry support for a state-based exchange has resulted in one of the very best functioning exchanges in the country. Difficult or potentially contentious issues that Connecticut may face in coming years include: 1) high health care costs and the diminished level of price competition among hospitals; 2) whether additional insurers will enter the exchange and whether the new nonprofit insurance co-op will remain financially viable; 3) whether the SHOP exchange will achieve critical mass; and 4) the appropriate level of consumer representation on the exchange board.

The Federal Medical Loss Ratio Rule: Implications for Consumers in Year Two

May 12, 2014

For the past two years, the Affordable Care Act has required health insurers to pay out a minimum percentage of premiums in the form of medical claims or quality improvement expenses—known as a medical loss ratio (MLR). Insurers with MLRs below the minimum must rebate the difference to consumers. This issue brief finds that total rebates for 2012 were $513 million, half the amount paid out in 2011, indicating greater compliance with the MLR rule. Spending on quality improvement remained low, at less than 1 percent of premiums. Insurers continued to reduce their administrative and sales costs, such as brokers' fees, without increasing profit margins, for a total reduction in overhead of $1.4 billion. In the first two years under this regulation, total consumer benefits related to the medical loss ratio—both rebates and reduced overhead—amounted to more than $3 billion.

Insurers' Responses to Regulation of Medical Loss Ratios

December 5, 2012

The Affordable Care Act's medical loss ratio (MLR) rule requires health insurers to pay out at least 80 percent of premiums for medical claims and quality improvement, as opposed to administrative costs and profits. This issue brief examines whether insurers have reduced administrative costs and profit margins in response to the new MLR rule. In 2011, the first year under the rule, insurers reduced administrative costs nationally, with the greatest decrease -- over $785 million -- occurring in the large-group market. Small-group and individual markets decreased their administrative costs by about $200 million each. In the individual market, insurers passed these savings on to consumers by reducing their profits even more than administrative costs. But in the large- and smallgroup markets, lower administrative costs were offset by increased profits of a similar amount. Stronger measures may be needed if consumers are to benefit from reduced overhead costs in the group insurance markets.

Estimating the Impact of the Medical Loss Ratio Rule: A State-by-State Analysis

April 5, 2012

Outlines the healthcare reform law's requirement that insurers spend a minimum ratio of 80 to 85 percent of premiums on medical care expenses or rebate the difference to policy holders. Estimates rebates in each state if it had been in effect in 2010.

Risk Adjustment Under the Affordable Care Act: A Guide for Federal and State Regulators

May 10, 2011

Summarizes discussions from a conference about the consequences of the 2010 healthcare reform's risk adjustment provisions, design and implementation challenges, and the merits of various risk adjustment strategies. Recommends diagnostic risk measures.

Who Will Be Uninsured After Health Insurance Reform?

March 10, 2011

Projects state-by-state compositions of the uninsured after reforms take effect including those eligible for Medicaid or exchanges but not enrolled, those exempt from the individual mandate due to a lack of affordable options, and undocumented immigrants.