Abstract
We investigate determinants of market entry and premiums within the context of the Affordable Care Act’s Marketplaces for individual insurance. Using Bresnahan and Reiss (1991) as the conceptual framework, we study how competition and firm heterogeneity relate to premiums in 36 states using Federally Facilitated or Supported Marketplaces in 2016. Our primary data source is the Qualified Health Plan Landscape File, augmented with market characteristics from the American Community Survey and Area Health Resource File as well as insurer-level information from federal Medical Loss Ratio annual reports. We first estimate a model of insurer entry and then investigate the relationship between a market’s predicted number of entrants and insurer-level premiums. Our entry model results suggest that competition is increasing with the number of insurers, most notably as the market size increases from 3 to 4 entrants. Results from the premium regression suggest that each additional entrant is associated with approximately 4% lower premiums, controlling for other factors. An alternative explanation for the relationship between entrants and premiums is that more efficient insurers (who can price lower) are the ones that enter markets with many entrants, and this is reflected in lower premiums. An exploratory analysis of insurers’ non-claims costs (a proxy for insurer efficiency) reveals that average costs among entrants are rising slightly with the number of insurers in the market. This pattern does not support the hypothesis that premiums decrease with more entrants because those entrants are more efficient, suggesting instead that the results are being driven mostly by price competition.
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Notes
Exchanges can also serve as a mechanism for expanding coverage to Medicaid eligible populations, as in the case of Arkansas, whereby the Medicaid expansion is a buy-in to the Exchange (Wayne 2013).
Data for these variables are measured at the county level. The GRA-level metrics are an average across counties weighted by each counties market size. Size is defined as the number of “target enrollees” and is further described in the data section below.
These results are not reported but are available from the authors upon request.
Specifically, we find that the 18 Medicaid expansion states and the 18 non-expansion states in our data do not differ markedly in the entry thresholds we observe (based on the four firm estimates); entry also does not appear to differ dramatically by whether states had open high risk pools or not.
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Funding was provided by Federal Office of Rural Health Policy (Grant No. 5U1CRH03717).
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Abraham, J.M., Drake, C., McCullough, J.S. et al. What drives insurer participation and premiums in the Federally-Facilitated Marketplace?. Int J Health Econ Manag. 17, 395–412 (2017). https://doi.org/10.1007/s10754-017-9215-y
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DOI: https://doi.org/10.1007/s10754-017-9215-y