What Health Insurance Exchanges Should Do to Cut Premium Costs

June 06, 2016 - The costs of premiums sold on the state health insurance exchanges tend to vary greatly, finds a report from The Commonwealth Fund. For instance, in 2016, the state of Tennessee saw a 38 percent increase in their health insurance premium costs while the exchange in Texas dropped premium costs by 8 percent.

Across the country, the monthly premium prices of all plans sold on the health insurance exchanges rose by 6 percent on average in 2016. Within employer-sponsored health plans, however, the premium costs increased by only 4 percent this year.

The report from the Commonwealth Fund also discusses how, in 2016, the 6 percent premium increase among marketplace plans varies drastically from the results in 2015 where marketplace premium costs did not rise on average across the country. However, in 2015, benchmark silver plan premiums did rise by 1 percent, but the same prices jumped to 6 percent in 2016.

It seems that the Affordable Care Act’s provisions to ensure medical coverage for every American individual and elimination of pre-existing condition clauses has led many insurance companies operating through the health insurance exchanges to increase their prices. There have been double-digit jumps in premium costs across 21 states, the study found.

However, there were also slight declines in premium prices discovered in seven states among health plans sold on the health insurance exchanges. There are slower rates of increase in more urban areas when compared to rural or suburban locations, which shows that there could be more competition between insurers in bigger cities.

The need for competition between health payers is key in keeping costs stable, which is why many critics find the impending health insurance mergers between Anthem-Cigna and Aetna-Humana damaging to the industry as a whole since it could negatively impact consumer interests such as higher monthly premiums.

These major insurance mergers may also bring other payers to follow in the footsteps of Anthem-Cigna and Aetna-Humana, explained Patrick Pilch, Managing Director and National Healthcare Advisory Leader of The BDO Center for Healthcare Excellence & Innovation, in an exclusive interview.

“Other payers will be trying to get scale just like Aetna and Anthem,” Pilch mentioned. “I do believe there will be more pursuits to scale and more activity in mergers and acquisitions. The other piece is that, in those markets, where plans are being diversified out or spun out, middle market plans may be interested in acquiring some of those markets if it makes strategic sense for them.”

“The other piece is, at the end of November, CMS released proposed rulemaking for the 2017 benefit and payment parameters program. I do believe that CMS is really looking at how to get more robust standardization of health plan options. Consideration among other payers may be: ‘Where am I going? Am I going to scale up and be like the Aetnas, Humanas, and Cignas of the world? Or am I going to try to build around and add on to my midsize plan to boost my capital?’  Again – payers need to think about the customers – its members.”

“Payers have to make that decision in terms of an acquisition. Can you make it on your own? Do you need to scale? I would say, likely, in most cases, you do need to scale.”

Another study conducted by the Commonwealth Fund called Differing Impacts of Market Concentration on Affordable Care Act Marketplace Premiums discovered that premium rates rocket upwards in the state of New York when there is a greater concentration of health insurance options. A greater concentration essentially means that there is less competition between payers.

However, in California, despite less competition between insurers, the premium rates grew much slower because its exchange incorporated selective contracting with a smaller number of plans and negotiated with payer’s on premium prices.

Within this study, researchers compared the financial data among the two health insurance exchanges of New York and California while keeping payer competition as a main focus of their report. The findings show that in regions of New York with less competition, the monthly premium prices rose quickly between 2014 to 2015.

In California, the health insurance exchange had more leverage by excluding certain insurers and selectively contracting with other plans. The exchange also negotiated premium prices in concentrated markets in a manner that allowed savings to be passed onto the consumer.

“Growing market consolidation in the healthcare industry raises questions about the impact on consumers, particularly on their health insurance premium costs,” the report stated. “Consolidation could provide efficiencies and thus savings that may be passed on to consumers; on the other hand, reduced competition could lead to higher costs. This study suggests that selective contracting and direct premium negotiation with health plans may be effective policy tools with which to control health insurance premium costs.”

Hospital concentration also affected health insurance rates since in both states the premium costs were higher in markets that had less competition between hospital systems. A greater influence from mergers and acquisitions could position a problem for the end consumers around the country especially regarding monthly health insurance costs.

With the upcoming mergers between four major payers, the future of the health insurance industry hangs in the balance with regard to the affordability of health plans around the country. State health insurance exchanges may need to take the example set by California and begin negotiating premium costs and contracting more selectively between payers.

Dig Deeper:

California Health Insurance Exchange Targets Costly Hospitals

Should Payers Question ACA’s Health Insurance Exchanges?