Competition on the Obamacare marketplaces will decline next year. There will be significantly more places in the country where customers have no choice of health insurance because just one company signed up to sell coverage.
This is the conclusion that health policy experts have increasingly gravitated toward in recent months and weeks, as major insurance companies have announced hundreds of millions of dollars in financial losses on the Obamacare marketplaces.
"Under any likely scenario, there will be less insurer participation in the exchanges in 2017 than there was in 2016," says Michael Adelberg, a senior director at FaegreBD Consulting who previously worked in the Obama administration helping to manage the marketplaces’ launch.
"It seems pretty clear at this point there will be less competition in the marketplaces next year, particularly in rural areas," says Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation.
President Obama promised when the marketplaces launched that Americans will find "[m]ore choices, more competition, and in many cases, lower prices." And insurance competition did go up in the first few years of Obamacare. Between 2014 and 2015, the US Department of Health and Human Services estimated that the number of insurance carriers participating in Obamacare increased 25 percent. More health plans wanted in on a new opportunity to sell directly to consumers.
But now some of these gains are backsliding. A recent analysis shows that Obamacare’s marketplaces will have twice as many exits as entrants in 2017. Insurers have tested out Obamacare, and in some cases they’ve lost hundreds of millions of dollars.
This all leaves the law in somewhat of an uncertain situation, one in which it’s not clear how well Obamacare will deliver on the president’s promise of "more competition."
Thirteen insurers plan to leave Obamacare markets in 2017 — and seven will join
We don’t have official data yet on how many insurers will sell coverage next year. But all data available suggests that the number will be notably smaller than insurer participation in 2016.
Adelberg at FaegreBD has been tracking marketplace newcomers and departures. By his count, at least 13 insurers have announced they’ll leave the Obamacare marketplaces. This figure likely underscores the severity of the problem, as two of those insurers, UnitedHealth and Humana, sell in multiple states.
At the same time, it looks like seven new carriers will come onto the market. But those insurers tend to be smaller, typically selling in just one or two states.
"In 2015 there was a good story about participation going up from 2014," Adelberg says. "And in 2016 there was a good story about holding participation steady amid a shifting market. The story will be harder this time around."
This means there will be more places in the United States where consumers have less choice of plans — if any choice at all.
The Kaiser Family Foundation estimates that 664 counties will have a single marketplace insurer in 2017, up from 225 of these counties in 2016.
Meanwhile, some insurers that were initially bullish on Obamacare are turning bearish. The prime example here is Aetna, a major insurer that signed up more than 800,000 Obamacare enrollees and as recently as April called the law a "good investment."
But on an earnings call Monday, Aetna’s views of Obamacare seemed to sharply change. Chief executive Mark Bertolini announced that the company lost $300 million on the marketplaces last year. Aetna will nix plans to expand into five additional states and will reevaluate the 15 states it currently sells in.
"Turning a profit has long been a struggle for the big national insurers," Kaiser Family Foundation’s Levitt says. "Aetna was always one of the more optimistic carriers. But now they seem much more pessimistic."
Obamacare has created winners and losers
When Obamacare launched in 2014, there was a vision that it would give smaller, newer health plans an easier entrance into a market dominated by insurance giants.
And it seems like a version of that did happen — except it was on steroids.
The dominant American insurers have typically made money selling large contracts to companies that provide health coverage for thousands of employees. And these employees have generally wanted really robust insurance networks, ones that provide a wide array of doctors to choose from. These employees are typically quite insulated from costs, as their employer pays a good chunk of their premium.
It’s becoming increasingly clear that that business model just didn’t work very well on the Obamacare marketplace. There, consumers have generally been low-income and proved exceptionally sensitive to prices. Many have switched plans during open enrollment so they can get a better deal.
The plans that have generally been successful on the Obamacare marketplaces are those that have experience helping states insure low-income Medicaid patients. These are insurers that had already set up narrow insurance networks that are especially adapted to the needs of lower-income consumers.
"Sometimes we talk about narrow networks as a negative," says Levitt. "But one thing these Medicaid plans may have done that others didn’t is identify the providers that are convenient for low-income enrollees, doctors that are in their neighborhoods and easier to get to."
Obamacare gets a lower price tag. Consumers get less competition.
When the Obamacare markets launched, there was decent variety in the premium prices and the breadth of coverage they offer. Some had low premiums and narrow networks; others had high premiums and a huge array of doctors to choose from.
What we might be learning now is that it's very hard for those two types of insurance to coexist in the same marketplace.
Levitt offered an analogy about restaurants that helped me make sense of the issue. Right now McDonald's and Michelin-starred restaurants coexist with little problem. One is expensive. One isn’t. Consumers use prices to decide where they want to eat, and each restaurant attracts different diners.
But this balance of expensive and inexpensive might not work in the insurance marketplace, because in health care some people just need a lot more care than others.
To go back to the restaurant analogy: Think about what would happen if all the people who showed up to the Michelin-starred restaurants also had insatiable appetites — and the restaurant was responsible for sending them home with a full stomach. The restaurants would go broke selling them lobster after lobster.
And this is a simplified version of what happened to the more expensive health plans on the marketplaces right now. Insurance plans can’t cap the benefits they offer patients. Sick customers gravitated toward robust plans, and they used so much coverage that the premiums didn’t cover all the bills.
So it is possible that what we’re seeing right now is that the more expensive plans — the ones that offer wide networks of doctors, low deductibles, and brand-name hospitals — are getting edged out of the market. And that the type of insurance sold through Obamacare will be much more homogeneous than we realized.