Another ACA Problem: Mass Insurer Exit Diminishes Consumer Choice

By Brian Blase of Mercatus.

"President Obama promised that the Affordable Care Act (ACA) would increase competition and choice in insurance markets. In a 2009 speech to a joint session of Congress, for example, the president said, “Individuals and small businesses will be able to shop for health insurance at competitive prices. Insurance companies will have an incentive to participate in this exchange because it lets them compete for millions of new customers.” This claim, along with many others made by ACA supporters, have proven to be wrong. In fact, Americans have far fewer choices for individual market coverage today than they had before the ACA took effect and there is a rapidly declining number of insurers now offering coverage in the ACA exchanges.

Earlier this week, a report from the Obama administration revealed that 25% fewer insurers will be offering exchange coverage in 2017 than offered coverage in 2016. This decline is on top of the more than 25% reduction in the number of insurers offering coverage in the individual market between 2013 and 2016. Further, in 2017, the weighted average number of carriers participating in each county will be 2.9—a nearly 50% decline from 5.7 average carriers participating in each county in 2015.

ACA Significantly Reduced Plan Choice

The ACA required that all individual market plans cover an extensive list of services with numerous rules on minimum value and pricing. As a result, people no longer have the ability to choose an insurance plan that best meets their needs and budget. Since insurers must offer essentially the same benefit package to everyone, the variation in plans is limited to which doctors and hospitals are covered by the plans and the size of deductibles and copayments.

ACA Has Resulted In Many Places With Little, If Any, Insurer Competition

In 2017, an estimated 21% of people will only be able to choose an exchange plan from a single insurer. This problem is particularly acute in rural counties. As a result of the ACA, at least five states—Alaska, Alabama, Oklahoma, South Carolina, and Wyoming—will only have a single insurer offering coverage in the individual market. In other states, a single insurer will only offer coverage in many parts of the state. For example, in North Carolina, people in 95 of the state’s 100 counties will only have a choice of plans from a single insurer.

Although the lack of choice and competition is more prevalent in rural parts of the country, people in many major metropolitan areas will also suffer. For example, Maricopa County, Arizona (population: 4.2 million as of July 1, 2015), which contains Phoenix, will have a single insurer. So will Medina County, Texas (population: 42,000), which contains part of San Antonio. There will only be two insurers in Orange County, Florida (population: 1.3 million), which contains Orlando; in Wyandotte County, Kansas (population: 163,000), which contains Kansas City; St. Louis County, Missouri (population: 1 million), which contains St. Louis; Philadelphia County, Pennsylvania (population: 1.6 million), which contains Philadelphia; and Shelby County, Tennessee (population: 938,000), which contains Memphis.

Large insurance companies, such as UnitedHealthCare, Humana, and Aetna, have made the decision to mostly withdraw from state exchanges after incurring substantial losses over the past few years. These insurers are unlikely to return as much higher premiums—increasing 25% on average in 2017—will likely result in healthier people tending to drop coverage in greater numbers than people who expect to incur significant medical expenses. Aetna’s CEO Mark Bertolini put it this way, “As the rates rise, the healthier people pull out because the out-of-pocket costs aren’t worth it. Young people can do the math…What happens is the population gets sicker and sicker and sicker and sicker. The rates keep rising to try and catch it. It’s a fruitless chase.”

There are two ways to bring insurers back into the market. Congress could hike the individual mandate tax penalty and direct additional subsidies or bailouts to insurers to cover losses. Alternatively, Congress could allow people to choose the policies they want and allow insurers to offer those policies. The choice for policymakers is between adding more government rules, taxes, and subsidies or freeing the market from the ACA provisions that have made insurance a very bad deal for relatively young and healthy people who do not qualify for giant subsidies."