A long article by Reed Abelson in the New York Times business section expertly illustrates a point that we at Via Meadia have been making for a while: One of the major effects of the Affordable Care Act has been to reduce competition in the health insurance sector. The piece—the latest in a series of NYT stories documenting the ACA’s shortcomings in the private insurance market—attempts to explain why the once-vaunted Obamacare co-ops (alternative, not-for-profit health insurers) are failing so spectacularly. The answer: The law has not lived up to its supporters’ promises that it would foster competition and drive down prices, and instead has created an insurance market increasingly controlled by large carriers. NYT:
As the new co-ops begin failing just a year into the effort to remake the health care industry with more competition and lower costs, the marketplace is proving hostile to newcomers trying to break into an industry dominated by powerfully entrenched businesses. […]
The co-ops’ problems are compounded by moves among the industry’s biggest companies, like Anthem and Aetna, which plan to buy their rivals to become even bigger. That raises the specter of even less competition in the marketplace and less room for smaller players to make a dent.
The existing health insurance landscape isn’t just a problem for co-ops, which are subject to a special set of rules and regulations; it’s a problem for for-profit insurers trying to break into the market as well:
In addition to the co-op failures, there have been other notable departures. Assurant Health, a for-profit insurer that tried an aggressive entry into the individual insurance market last year, stopped selling coverage altogether. Even one of the most popular new plans in Minnesota, offered in 2014 by a collaboration of local hospitals and doctors, no longer covers people through the state marketplace.
The McKinsey Center for U.S. Health System Reform counted dropouts among insurance carriers that were selling insurance to individuals for the first time (rather than group coverage to small businesses or large employers). It found that eight carriers had dropped out of nine states so far.
Furthermore, “only two for-profit companies that were not already health insurers have entered the state marketplaces so far.” The market is unfriendly to new entrants because premiums are rising as insurance companies take on sicker customers. Moreover, major insurers’ connections and capital gives them a substantial advantage on the ACA exchanges. This could become a vicious cycle: As competition wanes, premiums will rise, which will make the market even more unaffordable for new insurance companies. This would be good news for giants like Blue Cross and Aetna, which look likely to dominate a greater and greater share of the health insurance market, but not so good news for consumers looking for affordable plans.
The NYT article on health insurance competition is a reminder that looking at the raw number of Americans who are insured gives only an incomplete window into how well our healthcare system is working. Today, the Obama Administration announced that the percentage of Americans without health insurance fell in the last year. This doesn’t say anything about what kind of coverage the newly insured will get, or how sustainable the system is over the long run. If competition continues to collapse, the law will not fare well by these measures.