One aim of the Affordable Care Act is to promote competition in the individual health insurance market to improve the coverage, quality, choices, and affordability of premiums available for purchase. The Affordable Care Act eliminated the ability of issuers to use medical underwriting to establish premiums for most new plans in the individual and small group market, and required issuers to accept all applicants for non-grandfathered coverage, regardless of health status. The new Marketplace facilitates comparison shopping, and those who qualify can also receive financial assistance to help pay for coverage. As a result, consumers now have greater opportunities to find affordable health plans that fit their preferences regarding premiums and type of coverage.
The Marketplace represents a new market environment that will evolve over time and there are different theories on how competition will work in this setting. The simplest view of competition suggests that as the number of issuers increase in a market, premium rates should decline. A more nuanced view of competition suggests a more varied set of outcomes. In that view health plans are not identical and their different features are valued differently by different consumers. This creates customer loyalty to plans that, in turn, means issuers of those plans can exert some limited control over the premiums they charge. A potential outcome of this type of competition is that rating areas with a larger number of issuers13 may exhibit a greater variety of plan types being offered and a corresponding wider variety of premiums relative to markets with fewer issuers. In this brief, we examine these potential effects by using a number of premium measures by rating area to assess the effects of larger numbers of issuers.
13 A health insurance issuer is a company that may offer multiple Marketplace plans. For example, a hypothetical Blue Cross and Blue Shield licensed company would be a health insurance issuer, while its $2000 deductible silver plan would be a Marketplace plan. An enrollee may have fewer issuers participating in his or her rating area than the total number participating in that state, because issuers are not required to offer a Marketplace plan in every rating area.