What Happens When Health Plans Compete

What Happens When Health Plans Compete

Obamacare-draft-AP

(New York Times) – As a candidate in 2008, President Obama promised that health reform would reduce family premiums by up to $2,500, equivalent today to about a 15 percent reduction from the 2013 level. Though Mr. Obama might have been including the effects of premium subsidies in his calculation, a key premise of the Affordable Care Act is that competition among health insurers will drive premiums downward. So it’s worth asking: How much savings can additional competition produce?

The most direct answer to this question comes from analysis by Leemore Dafny and Christopher Ody of Northwestern University and Jonathan Gruber of M.I.T. They estimated the effect of greater competition on premiums for the second-cheapest silver-rated plans in the 34 exchanges that rely on at least some operational assistance from the federal government, known as “federally facilitated” exchanges. Their findings were based on a statistical model that predicts the effect of competition in the marketplace on premiums, controlling for other factors that could affect premiums like the demographics, income and hospital price levels in each market.

Many insurers did not participate in many of these exchanges in 2014. UnitedHealthcare, the nation’s largest insurer with 84 million policies in force in 2010, did not participate in any exchanges. Had it done so, Ms. Dafny and colleagues estimated that premiums would have been 5.4 percent lower. Had all insurers in each state’s 2011 individual market participated in that state’s exchange in 2014, premiums would have been 11 percent lower, saving $1.7 billion in federal premium subsidies.

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