Health insurance exchanges seem to benefit consumers by facilitating competition
August 02, 2015
One of the centerpieces of the Affordable Care Act was to create health insurance exchanges for each state. More than that, the health insurance exchanges required the insurance plans to be grouped into different tiers (e.g. Bronze, Gold) so that consumers could more easily compare their options. When experiencing a simplified the selection process, some consumers probably ended up selecting less expensive plans than they would have otherwise since they could feel more confident that they were indeed selecting a comparable package. That's the theory at least. A related theory is that competitive marketplaces (exchanges that offered more plans) should experience lesser price increases. On this theory, the Department of Health and Human Services (HHS) has released some preliminary data that substantiates this point.
In an issue brief, HHS released data indicating that the counties with a net increase in the number of insurers experienced a 2% price reduction for the benchmark plan, where as counties with a net decrease of insurers experienced a 12% increase in the benchmark price. HHS did not release enough data for us to be sure that the two numbers (number of insurers and price of benchmark premium) are related. For example, there might be confounding variables. Also, the benchmark premium is defined as the second lowest cost silver plan, which is somewhat awkward since insurers might be able to reduce costs by altering other aspects of the plan that are not easily comparable (such as narrowing the network of providers that accept the plan). These concerns are slightly alleviated by looking at the weighted enrollment (e.g. if a plan is terrible, fewer people will enroll in it even though it's cheaper), and there, the gap between the two different categories of counties was much smaller (1% increase vs. 4% increase), but still supports the overall theory.
Overall, the numbers do suggest that increased competition does actually lead to lower prices. The issue brief also notes that most counties did see an increase in the number of insurers, which is also positive for the consumer (even if the prices were not affected). On those notes, the health insurance exchanges seem to be functioning as designed: facilitating competition to drive down premiums.