Will exchanges see real competition among insurers?


The White House claimed a victory last week when it announced more than 120 insurers intend to sell plans on the federally-run health insurance exchange and that 90 percent of consumers would choose from at least five insurers.

That's promising news, for sure. But while the Obama administration focused on these positive aspects of the online marketplaces' progress toward implementation, it wasn't telling the whole story.

Circumstances in some individual markets are flying in the face of the White House's self-professed win, particularly as big name insurers remain on the exchange sidelines.

Take, for example, New Hampshire, which will offer the federal exchange version for its consumers. The state's individual insurance market includes four insurers, only one of which has shown interest in selling plans through the exchange. Anthem Blue Cross Blue Shield, which already dominates 90 percent of the state's individual market, has been the only insurer to submit plans for the marketplace.

This begets the obvious and rhetorical question--how can a market with only one company be even remotely competitive?

But New Hampshire isn't exactly unique. Some other Northeastern states also have only a few insurers submitting plans for their exchanges. In Vermont and Rhode Island, just two insurers have shown interest in participating in each of their individual exchanges. Washington state received only one bid, from Kaiser Permanente, to sell plans on the small group exchange in some counties.

Then there are states with lots of competition that doesn't include big insurers. In California, 13 insurers proposed plans for its state-run exchange, but Aetna, UnitedHealth and Cigna abstained. Those three insurers comprised only 7 percent of California's individual market in 2011, so they likely each determined it wasn't worth the risk and effort required to create a stronger presence in a competitive market.

As Larry Levitt, vice president at the Kaiser Family Foundation, said: "It's not an easy market to enter. You need to have to have a lot of systems in place to be an insurance company, like a provider network, and be able to compete against a known brand."

If such large companies aren't willing to expand into relatively new markets, what hope is there for smaller insurers that lack the big guys' resources, staff power and financial strength to stretch out into different areas? Where's the incentive for insurers, big or small, to do all the legwork needed to sell new plans on a new marketplace?

But I digress. Back to the White House's memo. Despite the administration's attempt to paint a rosy picture of competition in the federal exchanges, some industry analysts weren't so quick or willing to reach the same conclusion.

"I would characterize it as modest plan competition," Caroline Pearson, vice president for health reform at Avalere Helath, told The Washington Post. "In most markets, there seems to be a bit more choice than what's available in the market today. But we're certainly not seeing a wild influx of plans into the market."

Then there's Jay Angoff, who formerly worked for the U.S. Department of Health & Human Services overseeing the insurance exchanges. He said competition might be overrated, explaining that if fewer insurers have more members, they can better spread out risk. "It is not the case that the more, the better," Angoff told The Wall Street Journal.

Obviously not everyone agrees with Angoff's take on the importance of competition. And it will remain to be seen whether consumers mind that some exchanges only offer plans from one or two insurance companies. Only time will tell whether competition will drive exchange success or hinder it. - Dina (@HealthPayer)