National attention has focused in recent months on whether consumers will flock to the new health insurance marketplaces and bolster their solvency. But less noticed is the extent to which insurers have opted to participate, which also could determine the marketplaces’ success.

The health insurance marketplaces, also called exchanges, were created by the Affordable Care Act (ACA) to offer individual and small group coverage in each state. The marketplaces were designed to provide a place where most Americans who the law requires to obtain qualifying insurance—starting in 2014—have a place to obtain it. 

The marketplaces differ sharply from existing individual and small group markets in that all of the plans must offer minimum coverage at federally subsidized rates for consumers earning up to 400 percent of the federal poverty level. The marketplaces also bar plans from rejecting applicants based on health status and limit the extent to which insurers can vary rates based on several variables, such as age or smoking status. 

But a central goal of the marketplaces is to spur competition among participating insurance plans to slow a decades-long trend of healthcare costs rising faster than inflation. That competition requires broad participation by insurers, which has occurred in some state marketplaces and not in others. 

Marketplace Participation Varies

Consumers in the 36 state marketplaces examined in a September report by the U.S. Department of Health and Human Services will have an average of 53 plans offered by eight insurers. The report noted that the number of insurers selling marketplace plans ranged from one to 13 companies but did not detail the number for each state. 

Marketplaces in at least 17 states and the District of Columbia offer plans from four or fewer insurers, according to tracking by Leavitt Partners, a healthcare consultant. 

Another phenomenon—occurring both in states with broad insurer participation and in states with little competition—is that prominent insurers have decided not to sell plans in the marketplaces of states where they already have a presence.

The extent to which insurers have dropped out of marketplace participation has not been tracked by national insurance advocacy groups or regulator organizations. 

High-profile marketplace departures have included Aetna dropping out of its Connecticut home state marketplace and United Health Group—the nation’s largest private insurer—opting not to offer plans in the California marketplace, which is expected to be the nation’s largest ACA marketplace.

Aetna also is not participating in the California marketplace and dropped bids to participate in Maryland, Ohio, New York, and Georgia.

Anthem Blue Cross—the nation’s largest insurer of small businesses—also dropped its bid to participate in the California small group marketplace. 

Insurer decisions to drop out of or not participate in marketplaces in states where they already sell policies are, in most instances, due to either uncertainty about the rates their underwriters have determined are necessary for plans to remain solvent or the state’s rejection of those rates.

Obstacles to Participation

Health policy experts who have tracked the development of the state marketplaces agree that insurers face cost restraints from regulators in some states and a lack of certainty in all states because no one knows the extent to which eligible consumers will participate. 

“There’s a lot of uncertainty about exchange participation, particularly around the healthy individuals who will help to balance the risk in the exchanges,” Daniel J. Schuyler, a director at Leavitt Partners, said in an interview. “A lot of carriers are concerned about what types of enrollment specific exchanges will see.”

Another area of uncertainty that insurers are not discussing is the efficacy of risk-adjustment measures the federal government will launch for marketplace plans that have proportionately sicker enrollees. 

Whether the risk-adjustment measures will keep plans viable is uncertain because there are no prior data to demonstrate the measures’ effectiveness, Schuyler said. 

Further uncertainty has come from possible administrative snafus that could complicate consumers’ enrollment or subsidy determinations and thereby reduce participation, Robert Laszewski, a health policy consultant and former health insurance executive, wrote in a note to clients. 

Such technological snafus crashed many marketplace websites on their initial day of enrollment. But administration officials emphasized they expect fewer technological failings over the remaining weeks until the Dec. 15 deadline for coverage to be active Jan. 1.

However, in the run-up to the exchanges’ launch the uncertainty was so great, according to Laszewski, that even not-for-profit plans that have long-dominated coverage in at least three rural states—Mississippi, Iowa, and South Dakota—shied away from the marketplaces.

Some health policy experts have raised concerns that insurers opting out of the marketplaces could produce higher premiums, which could in turn reduce enrollments for consumers sensitive to higher prices.

Impact of Nonparticipation

But marketplace enrollment also could be reduced by opt-out insurers, according to an analysis by HealthPocket, a free rate comparison site. On comparing existing market premiums offered by insurers that are participating in the ACA marketplaces with those offered by opt-out insurers, the HealthPocket analysis found that opt-out insurers in nine of 10 states offered lower average premiums than did participating insurers. 

“We would assume that the carriers that were very price competitive in the existing market would still be in 2014,” Kev Coleman, head of research & data for HealthPocket, said in an interview.

Some opt-out insurers have said they plan to take a wait-and-see approach to exchanges’ 2014 performance and could join to offer marketplace plans for 2015. Insurers opting not to participate in 2014 may base decisions of whether to participate in future years not only on the extent to which consumers enroll but also on whether other insurers’ final 2013 premiums are seen as viable.

The opposite also is possible, Schuyler noted. If marketplaces have higher-than-anticipated ratios of high-cost enrollees and needed rate increases are not approved by state regulators, even more could opt out in future years. 

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare.

Publication Date: Wednesday, October 02, 2013