Is lack of competition hiking Indiana exchange premiums?

October 21, 2013
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I wrote a story this past weekend about how the premiums offered on Indiana’s version of the Obamacare exchanges are among the 10 highest nationally.

The two reasons for this surprising fact, cited most by insurance and hospital experts, were 1) high prices by health care providers and 2) poor health among Hoosiers.

And there’s good evidence for both.

But what about a third factor—the fact that only four health insurance companies are even offering policies in Indiana’s Obamacare exchange.

That’s a far cry from the pre-Obamacare situation. A total of 17 health insurers that were selling individual policies in Indiana in 2010 have withdrawn from this market since then, according to data from the Indiana Department of Insurance.

On first glance, that seems significant. The U.S. Department of Health and Human Services noted in a September report—the same report that included the data on Indiana’s premiums relative to other states—that premiums tended to be lower in states where more insurers were participating.

“In the 36 states included in this analysis, states with the lowest average premium tend to have a higher average number of issuers offering qualified health plans,” stated the HHS report. “There are, on average, 8 issuers participating in the Marketplace in the states with average premiums in the lowest quartile, compared to an average of 3 issuers in states with average premiums in the highest quartile.”

But two factors that make me question this conclusion--at least for Indiana.

First, it seems to me that a fractured insurance market would give insurers less negotiating power over health care providers. And that would limit the pricing pressure those insurers could put on providers.

In Indiana, Anthem Blue Cross and Blue Shield claims about 60 percent of all individually insured customers, and a similar chunk of fully insured businesses. You would think Anthem would have a better chance here than in more fragmented markets to hold providers down on their prices. (Although, the evidence on provider prices, at least in Indianapolis and Kokomo, suggests Anthem--and all other insurers too--has failed to do this.)

A second factor is that the insurance companies did not know in advance how many other insurers would participate in the Obamacare exchanges (although, in Indiana, the race for the exits began pretty early after the passage of Obamacare). Also, the insurers had no way of seeing other insurers’ prices before they prepared their own applications.

Now, in some states, such as Oregon, insurers resubmitted lower rates after seeing those offered by other insurers.

But here in Indiana, insurers appear to be pursuing mutually exclusive strategies. Anthem, for example, is focused on lower premiums compared with other insurers. Anthem President Rob Hillman said Anthem has viewed its real competition as coming not from other insurers, but from the modest penalties Obamacare will levy on Hoosiers for failing to buy health insurance.

Those taxes start at $95 per adult next year and can go no higher than 1 percent of a household’s income.

“Although the other [insurers] are going to participate on the exchange, they are not Anthem's competition,” Hillman said during the IBJ Health Care Power Breakfast last month. “The competition is the penalty.”

Meanwhile, MDwise Inc. is touting its “broad” network. MDwise’s exchange plan includes the state’s three largest hospital systems—Indiana University Health, St. Vincent Health and Franciscan St. Francis Health—whereas Anthem has excluded those systems from its exchange plan.

Anthem's exchange plan, in central Indiana, includes Community Health Network, most of the Suburban Health Organization hospitals, and Wishard Health Services. Documents filed by Anthem with the Indiana insurance department indicate that Anthem's "narrow network" is saving it about 9 percent from what it paid health care providers in previous years.

MDwise’s premiums are close to Anthem’s, but in most cases, not quite as low. One reason is that MDwise, which is owned by two hospital systems, wanted to keep consumers deductibles modest--around $1,500 for most of its policies--in order to protect the finances of the hospitals. Anthem's deductibles tend to run higher than that.

"So it's not so exorbitant that we're going to have a lot of bad debt and charity care down at the hospital," explained MDwise CEO Charlotte MacBeth in an Oct. 8 presentation.

Perhaps having more insurers competing would have allowed more of them to pursue a low-price strategy against Anthem. But given Anthem’s insistence on getting the lowest discounts a health care provider gives, it’s hard to see how that would have worked out in fact.

As a result, I didn’t cite competition as a factor in my story. What do you think? Should I have?

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  • poors health is a factor?
    I just wanted to get a quick clarification... in the 2nd paragraph you cited insurance and hospital experts as claiming a reason for high premiums on the exchanges is due to "poor health among Hoosiers". My understanding is that under the new law, community rating does not factor in health status. So based off their statement, does this mean health status does factor into the cost?
    • Yes it does matter
      Health does indeed factor into the projected cost. If there has been a high incidence of larger (or many) claims in an area, it is going to be factored into the equation along with the cost of treatment etc... So, although medical questions can not be asked, if an area has 45% more heart attacks than other parts of the state, you know it will have an impact. Of course, the next year, after all factors are reviewed, certainly rates could increase or decrease.
    • Lack of Competition
      Lack of competition will drive prices higher. What is driving the lack of competition? Answer; complexity of government regulations, which are multiplied under the Orwellian-named "Affordable Care Act". The only way to make it affordable is to pay health providers less, which will in turn make health care more scarce. Defying the laws of supply and demand is like defying the laws of gravity. It will all crash down.
      • Blame in part lies at the State Capitol
        Blaming federal regulations for lack of competitive options in Marion County (only two choices) ignores that California, New York, Oregon, to name just a few, have had healthy competition and reduced rates as a result of their active management of state-run exchanges. All Indiana did was sue, and defaulted to the federal Marketplace when time ran out. Certainly lack of healthy insureds in our state plays a role. But with an Indiana-run exchange actively shaping participants and encouraging enrollment by insurers, perhaps we might be paying less? Has nothing to do with the federal program and everything to do with the occupants of the Governor's chambers downtown.
      • Attrition also due to EHB requirements
        While the number of fleeing insurers formerly offering policies in the individual market is surprising to me, some attrition is logical since those insurers may have been offering bare bones policies that would not qualify for sale on the Marketplace. Under the ACA, a policy to qualify for sale must offer a number of "Essential Health Benefits" that many unregulated policies simply don't offer. The state is not worse off with such insurance carriers deciding not to improve their coverages.

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