Managed Care Organizations Show How Public Option May Lower Premiums
Since managed care organization competition may bring down premiums by seven percent, researchers have hope for public option’s ability to do the same.
Source: Getty Images
- Introducing a public option could encourage commercial payers to lower their premiums, a trend reflected in increased competition from Medicaid managed care organizations, researchers from the Urban Institute found.
“Competition can encourage insurers to negotiate lower prices with health care providers,” said Linda Blumberg, institute fellow at the Urban Institute, in an emailed press release. “A public option may deliver the catalyst that insurers and providers need to make coverage more efficient and affordable.”
Using data from Healthcare.gov, researchers observed Medicaid managed care organizations’ (MMCOs) premiums, using these as a proxy for a public option.
MMCOs were the best available substitute for public option because they are on the Affordable Care Act (ACA) marketplace and act like a Medicaid network with provider rates that are lower than those of commercial payers.
The researchers found a clear correlation between competition and lower premiums, a trend that has been acknowledged by government officials as well.
The researchers looked at areas that had both public and private payers. They compared the private payers’ lowest-priced premiums to private payers’ premiums in regions without a Medicaid competitor.
According to the data, rating areas that had a Medicaid payer boasted a premium benchmark that was around $30 per month less than regions that did not have a Medicaid payer involved in their marketplace.
More specifically, the researchers looked at private payers’ least expensive silver health plan premiums, which are on average $534 in areas without a Medicaid competitor. They compared these to private payers’ premiums in areas that had a Medicaid competitor. Private payers who competed against a Medicaid payer tended to have premiums that were seven percent lower than the average private payers’ silver health plan premium.
“Though we do not suggest our models are sufficiently comprehensive to assess whether the relationship between Medicaid insurer presence and non-Medicaid insurer premiums is causal, our results suggest a causal relationship,” the researchers explained.
The results could not be due to Medicaid payers gravitating toward lower-cost areas because the study controls for hospital market concentration and wages, the researchers argued.
It is possible that Medicaid payers are simply entering markets with low competition, the researchers conceded.
However, they found this possibility unlikely, given the fact that rating areas with one or more Medicaid payers were likely to have four or more private payer competitors.
The Medicaid proxy proved not to be a perfect parallel to a public option, however. The researchers did identify a negative correlation between Medicaid payer presence and benchmark premiums. However, the fact that 28 percent of Medicaid plans were not the lowest priced in their region did not mimic public option, which would be consistently lower than the competition.
“The direct effect is that the public option would offer a premium likely significantly below commercial insurers’ premiums in a noncompetitive area; that is likely to be the largest effect in those rating regions. The indirect effect is that private insurers can also be expected to lower their premiums in response, as estimated here, additional but likely smaller savings than those of the direct effect,” the researchers concluded.
The study also evaluated other characteristics of ratings areas with a Medicaid payer.
Rural areas, regions with higher numbers of payers, and federally facilitated marketplace rating regions were associated with higher benchmarks, the study found.
Also, rating areas with a Medicaid payer were likely to be in a state with broader Medicaid eligibility through ACA Medicaid expansion, the data suggests. Such states also have a higher population and a lower number of bare coverage areas with just one payer.
Some states are taking matters into their own hands and testing a statewide public option. However, states tend to face significant pushback over this possibility, such as Colorado’s plan which met with heated controversy. Data such as this Urban Institute study will help inform the dialogue in Colorado and other states that are debating taking similar steps.
