Paul Michael Cohen is running some interesting data on Exchange competition and premium pricing. He has tested two theories of competition. Does more insurers on a given exchange lead to lower average premiums? Does more insurers on an Exchange lead to lower minimum premiums (ie the Second Silver benchmark?)
My first analytical approach was to plot the mean monthly premium in each state (by coverage level) against the number of unique insurers in each market (see R code on Github). A basic linear regression of premiums by number of unique insurers and by coverage level revealed no significant relationship….
Average premium rates are insensitive to the number of insurers on the Exchange. I am not too surprised.
However, it is possible that the important unit of analysis is not the mean premium in each market, but instead the minimum premium in each market….
There is a significant negative relationship between increased competition and health insurance premiums for all coverage levels in 2014 and 2015. The regression model (collapsing 2014 and 2015 rates) suggests that each incremental market entrant corresponds to a 3% reduction in monthly premiums. Moreover, this trend continued as more entrants entered the market in 2015. However, linear regressions by year suggest that the size of the competition relationship is decreasing: the effect of an incremental insurer on premiums was -3.7% in 2014 and -2.8% in 2015…
This result makes sense to me as the relevant problem that insurers, or at least insurers in my market, have been trying to solve is who offers second lowest priced Silver.