Carrier competition on the Arkansas Health Insurance Marketplace | Arkansas Blog

Sunday, June 9, 2013

Carrier competition on the Arkansas Health Insurance Marketplace

Posted By on Sun, Jun 9, 2013 at 1:37 PM

The Washington Post's Sarah Kliff rounds up the dozen states that have released public information about the carriers that will sell on the Obamacare exchanges, including the Health Insurance Marketplace (HIM) in Arkansas. (New Hampshire, not included on Kliff's infograph above, currently is set to have just one carrier.) Some of these numbers may change; Arkansas may yet get one or two additional federal multi-state carriers, and most states have not yet approved plans from the carriers.

Arkansas lands near the bottom of the list, but given its size and the lack of competition in the state today, five carriers has generally been seen as a success. A question we've been looking at: Does it represent "enough" to make a strong, competitive market? I asked Martin Gaynor, Professor of Economics and Health Policy at Carnegie Mellon, and he responded via Twitter that "we don't know for certain...because this has never been done before [and] because there's not a lot of evidence." The evidence that does exist, Gaynor wrote, suggests that premium prices fall with more firms entering the market; the biggest impact comes from going from one firm to two; and the competitive benefits continue with additional firms, potentially up to 11, although with diminishing returns.

There's reason to be hopeful that five carriers will be a good number in terms of enhancing competition to drive down prices (and remember, premium prices will determine the overall cost of the "private option" for Medicaid expansion). But having five offering plans on the exchange won't necessarily solve the main issue that is keeping the state from having a competitive market today: the dominance of Arkansas Blue Cross Blue Shield, which currently controls more than 75 percent of the market. In fact, while folks often talk as if the state currently has just two carriers, that's not the case. There are lots of carriers with a tiny share of the market today. If one firm controls three-quarters of the market, the competitive effect is going to be dulled no matter how many additional firms are competing. Will the HIM marketplace put a dent in market-share domination? As Kliff notes in her story, that's an open question.

One big challenge with the individual market, right now, is that most states have one or two health plans that are incredibly dominant. Sometimes, there could be dozens of other plans that have barely any market share, covering a few hundred or even just a few dozen people.

One big question about Obamacare is whether exchanges change that dynamic, if the new marketplace lets one of the non-dominant plans gain a bit of stronger footing in its market share. The numbers we have so far can’t really tell us whether that will happen. An exchange with 13 health plans could still end up with one or two dominant carriers. This is one of those frustrating instances where we just have to wait and see what happens next.

Here's where the "private option" in Arkansas might actually represent a tricky problem. On the one hand, the market was doubled by the introduction of the Medicaid expansion pool brought onto the exchange via the "private option," which helps attract more carriers to join the exchange. But that also means that around 200,000 customers in the marketplace won't be price sensitive at all, because the government will be picking up the full tab of the premium. The insurance companies will try to compete for them in other ways, but I'm going to go out on a limb and say that one particular company's brand-name recognition is a likely factor for a consumer not paying attention to the price.

"Competition won't be as tough if one firm has a big brand name advantage," Gaynor wrote.

If the "private option" consumers choose Arkansas Blue Cross Blue Shield en masse, we might be right back where we started.

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