Back in 2008, when President Obama was running for office, he made a promise that looks a little rash in retrospect. Obama told voters that under health reform, family premiums would fall by up to $2,500, the equivalent of about 15% from the 2012 level. When he took office and got the Affordable Care Act enacted, he was counting on the notion that competition between health insurers would drive premiums down.
So, it's now 2014. Did that happen? Did competition lower premiums across the board, saving American families a substantial amount on their hard-won healthcare dollars? The answer, after much study, seems to be sometimes, in some places, but only where insurers stuck their necks out and participated.
While they've been watching closely, the reality is that health plans have been ambivalent at best about participating in the health exchanges. Industry observers say that many have simply been hanging back and waiting to see what would happen.
Payers didn't play ball
Early in the ACA game, many health insurers just weren't ready to take a position in a new and possibly unprofitable market. And research suggests that their decision undercut the Obama administration's goals substantially. According to Northwestern University and M.I.T. joint study of health plan competition on the exchanges, health plans' refusal to participate heavily in the exchanges cost the nation a fortune.
The study, which estimated the effects of competition for second-tier silver-rated plans on 34 exchanges, suggested that payer competition could indeed cut premiums—as Obama had hoped. But it also concluded that this cost-saving effect only happens if payers are competing aggressively, which, well... they didn't.
Perhaps the biggest example of this dynamic came from UnitedHealthcare, the country's largest insurer with 84 million policies in force in 2010. UH chose not to participate in any exchanges in 2014. Researchers estimate that if it had participated in the 34 exchanges, premiums would have been 5.4% lower. Also, the researchers noted that if all insurers in each state's 2011 individual market participated in the state's exchange in 2014, premiums would have fallen 11%, saving a whopping $1.7 billion in federal premium subsidies.
So, if payers get more excited about the exchanges and rush in, will that produce the savings Obama promised? Well, probably not. Research suggests that competition can only take us so far. One study of large employers from 1998 to 2005 found that in the years employers earned higher operating profits, they paid higher premiums, but only in markets with 10 or fewer payers. In other words, there's a limit to how much competition can accomplish.
After all of this, can we finally expect to see the promised premium reductions? It seems possible. Once a no-show, UnitedHealthcare announced this summer that it would participate in exchanges in as many as 24 states next year, now that the risk profile of ACA enrollees has improved. Cigna and Aetna are boosting their position on the exchanges as well. And the Blues, which already know the individual markets well, aren't going to take the big boys' outreach lying down.
With so many new players likely to participate in exchanges in 2015, we'll finally get a look at what a fully competitive set of exchanges will look like and how they'll impact costs. Premiums could fall quickly where lots of new insurers enter markets previously dominated by a small set of payers.