When Insurance Carriers Compete, You Win

October 15, 2014

Data recently released by the Obama administration predicts that the number of insurers providing plans on federal and state insurance exchanges will increase by 25% for the next open enrollment period, which begins November 15th, 2014. According to the administration, there were 252 insurers for the plan year 2014. The number will rise to 315 for the plan year 2015.

Economics 101 teaches that competition in a market is nearly always good for consumers. With just a few insurers in the game during the first open enrollment period – in some states such as New Hampshire and West Virginia, just one – insurers had great latitude with plan prices. The hope is that more players will drive down premiums and improve service.

There still may be unequal distribution of services between urban and rural areas in some states, which could mean the lower prices might not be available everywhere. But generally speaking, consumers will win when more insurers compete for their business.

For example, according to joint research done by Northwestern University and M.I.T., if all insurers in each state’s 2011 marketplace had participated in that state’s exchange in 2014, “premiums would have been 11% lower, saving $1.7 billion in federal premium subsidies.” And of course, consumers would also have benefitted directly from those lower prices.

More competition, more choices

An increase in the number of insurers participating on the exchanges will also give consumers more choices when it comes to plans. In 2014, United Healthcare, the largest insurer in the country, did not offer plans on the exchanges, adopting a wait-and-see attitude. United Healthcare will be participating on the exchanges for the 2015 OEP, with plans to expand to as many as two dozen states for next year.

For most insurers, the second time around for the open enrollment period is less of a gamble and more of a savvy move to capture new customers and greater market share.

How insurers compete matters

Of course, how insurers compete makes a difference. Most start by offering attractive plans at appealing prices. But often the key to winning in a market is to beat the competition by creating an “unfair” advantage over them. In the health care market, that could mean leveraging size and a large footprint to negotiate the best prices within provider networks. If an insurer is able to “lock in” the best prices with the most utilized networks in an area, that can neutralize the competition and opens to the door for the victor to charge premium prices or pocket the savings, though insurers are required under the ACA to spend either 80 or 85% of premium dollars on medical services.

Still, for consumers, the benefits of increased competition are almost always a no brainer. If they do their homework and choose wisely, they should be able to find a plan that meets their needs at a price they can afford.

2 Responses to “When Insurance Carriers Compete, You Win”

  1. […] For more on the effect of competition among insurance carriers on premium rates, see our October post, “When Insurance Carriers Compete, You Win.” […]

  2. […] For more on the effect of competition among insurance carriers on premium rates, see our October post, “When Insurance Carriers Compete, You Win.” […]

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