Dean Baker and Brian Dew at CEPR write on ACA market structures. It is interesting but I don’t think they are thinking things through all the way. The ACA market structure, namely a price linked subsidy system where subsidy is a locally fixed sum tied to the second least expensive Silver plan in a region, creates oddities where simple analysis falls apart.
The lack of competition in the exchanges is a serious problem. While people can still buy insurance in the individual market off of the exchange, and still benefit from the ACA prohibition against discrimination based on pre-existing conditions, they are not eligible for ACA subsidies unless they buy insurance through the exchanges. These subsidies are necessary to make insurance affordable for millions of people.
So, the lack of a vibrant market in many counties is a serious issue for the ACA. However, there is an important part of the story that Trump and other Republicans forget to mention. The lack of competition in the exchanges is overwhelmingly a problem for people living in states controlled by Republican governors.
Competition is not an unequivical short term good for subsidized buyers. It becomes a micro level analysis. Competition in this type of marketplace produces odd results for subsidized buyers. We’ll work through some examples below the fold:
Marion County Indiana is the home of Indianapolis. It is a very competitive market in 2017. Two Medicaid like providers (Ambetter/Centene and Care Source) are competing aggressively in this market. They offer very similarly priced Silver plans with narrow networks and the choice of an EPO or an HMO. There are two other insurers (MDWise and Anthem BCBS) that are in the Indianoplis market for 2017 but will be leaving in 2018 as they are not price competitive. MDWise has a Silver that is priced 11% above Benchmark. Anthem’s least expensive Silver is 44% above benchmark.
The subsidy structure means a 40 year old earning $20,000 per year can buy a narrow network plan for $81 per month after. They can buy a narrow network HMO for $82 per month as the Benchmark Silver. For Bronze plans, the least expensive Bronze plan is $60 per month.
Perry County Tennessee is a non-competitive market. It has a single carrier, Blue Cross Blue Shield of Tennessee. BCBS offers a broad network. They offer a low actuarial value (AV) Silver. They also offer a high AV Silver plan that is the regional benchmark. The spread in pricing produces an interesting result. For the same individual earning $20,000 a year they can buy a Cost Sharing Reduction subsidy enhanced Silver for $0. They can also buy a Bronze plan for no out of pocket premium.
If we move a couple counties over to Roane County, it is also a non-competive market in 2017. Here the lack of competition hurts subsidized buyers as Humana only offers a single Silver plan. The same individual can buy a CSR Silver for $82 per month or a Bronze plan for no premium.
Competition is important for the entities that bear the full cost of premium. That is a combination of the Federal government and non-subsidized buyers.
However competition is not an unambiguous good given the subsidy attachment system for subsidized buyers. Perfectly competitive markets that produce converged products with minimal differentiation will lead to narrow network, Medicaid like offerings at fairly high post-subsidy premiums. We see that in Indianapolis. Non-competitive markets where the dominant or sole carrier offers a wide spread between the first Silver and the benchmark offers very low premiums to very healthy individuals and better benefits and/or networks for people who have more complex care needs at reasonable post-subsidy premiums. This is Perry County, Tennessee.
There are also non-subsidized buyers, though, and they are going to prefer the competitive markets. There’s also a budget impact for the government if non-competitive markets spread. $1000 per year per subsidized subscriber adds up.
@Fair Economist: Agreed — see
Overall, I think (not having looked) that competition and lower benchmark prices mark prices means a healthier pool overall as non-subsidized and generally healthier individuals are more inclined to buy a plan. This, I hope, would keep premiums lower overall and that reduces government outlays and reduces the cost of the non-subsidized.
The great thing about the subsidies the way they are handled now is they seem very reactive to sudden price shocks for those who are eligible for subsidies. Part of me thinks that people who choose to live in Alaska, or wherever, should have to pay the cost of living where they do just like people in Manhattan pay more for housing. But not enough for me to prefer the alternative.