Health Insurance Markets Perform Better in States That Run Their Own Marketplaces
In spite of actions by Congress and President Trump that undermine parts of the Affordable Care Act (ACA), reports of the law’s death are greatly exaggerated, as Mark Twain might have said. Enrollment in the ACA’s subsidized marketplace exchanges remains strong, and coverage remains available throughout the country. Not all insurance markets have remained as resilient as others, however. It appears that attempts to undermine the ACA have had greater effects in some locations than in others. In particular, analysts have noted that insurance markets remain healthier in the 17 states that run their own insurance marketplaces than in those that rely on the federal marketplace. We use newly released federal data to explore this difference between states.
Lower ACA Individual Market Premiums, Claims, and Costs in States with State-Run Marketplaces
In the individual market, insurers projected premiums for ACA-compliant coverage in 2018 that averaged 21 percent higher ($633 per month vs. $526 per month) in states using the federal marketplace than in those running their own marketplaces. Comparing these numbers to those from last year, insurers’ premium projections increased 68 percent more on average in federal marketplace states than in states with their own marketplaces ($135 per month vs. $82 per month).
These greater projected premiums in federal marketplace states continue a trend that has existed since near the beginning of the marketplaces. During the second year of the ACA marketplaces (2015), rate increases between the two sets of states were similar, but thereafter they began to diverge. In 2016, 2017, and 2018, insurers had greater premium increases in states using the federal marketplace than in states operating their own, with differences averaging 6 percentage points a year . Notably, the differences in rate increases were substantially greater for 2018 (11 percentage points) than for the prior two years (3 percentage points), as the stability of health care markets was thrown into question in the wake of the Trump administration’s pronouncements and policies.
For 2018, the difference in premiums between the two sets of states is based in part on greater projected medical claims in federal marketplace states. Insurers in federal marketplace states projected claims for 2018 that were 14 percent greater ($478 per month vs. $419 per month) than in states with their own marketplaces. Insurers in the federal marketplace states also projected higher administrative costs and operating profits per member, resulting in a substantially higher proportion of premiums (24.7% vs. 20.2%) going to overhead rather than to medical claims.
States That Run Their Own Marketplaces Are Better Positioned for Negative Impacts of ACA Changes
As insurers were adjusting to recent changes in administrative policy as well as market conditions, insurance markets in states with their own marketplaces appear to be more resilient than those in states using the federal marketplace. Under state-based marketplaces, insurers were able to project lower claims costs and keep administrative and overhead costs lower than in other states.
This greater resilience to policy efforts to weaken or undermine the ACA could result from a combination of factors that these data do not illuminate, but which other analysts (noted above, and here) have suggested. Principally, states with their own marketplaces have a more proactive engagement with the ACA, which is likely to translate into a more balanced risk pool and a greater willingness of insurers to enter or remain in the market. For example, when the Trump administration shortened the open-enrollment period and reduced advertising for the federal marketplace, states with their own marketplaces extended their open-enrollment periods and supplemented federal funds for outreach and assistance.
Other factors may well be at play in this observed difference between states.1 But the consistently and increasingly lower premiums in state-based marketplace states suggest that, as additional changes are made to the ACA, these states may be better situated and more motivated to buffer the potential negative impacts. States that wish to avoid the worst effects of market destabilization flowing from the most recent set of federal health policy reversals might want to follow the lead set by states that operate their own marketplaces.2
Data come from the 2018 Uniform Rate Review Template (URRT), which insurers filed in mid-2017, to establish compliance with the ACA’s rating rules. The URRT reports amounts that insurers’ actuaries anticipate in the coming year for enrollment, premiums, medical claims, administrative costs, and profits. We refer to these as “projected” amounts.
We initially examined 238 insurers in the individual market that projected having at least 1,000 members in 2018, and we weighted most financial performance indicators according to each insurer’s projected enrollment. (The only exception is for insurers’ historical rate increases which, in the final exhibit above, are weighted according to each product’s projected premium volume.) To account for rate filings that had not been updated to reflect the Trump administration’s cancellation of cost-sharing reduction (CSR) payments in October 2017, we excluded 8 insurers that projected CSR payments greater than 10 percent of their total premiums, resulting in a final sample of 230.
In categorizing states between federal vs. state-based marketplaces, some states are regarded as “partnership” states because they assume some of the exchange’s regulatory functions while still using the federal exchange. Financial indicators in these partnership states were substantially similar to the pure federal marketplace states, so we combine their experience with the other federal exchange states.
1 For instance, states with their own marketplaces were also those that tended to disallow the sale of non-conforming “transitional” policies, whereas federal marketplace states more often allowed the continued renewal of these policies, which tends to fragment the insurance market. K. Hempstead, Marketplace Pulse: Leaky Risk Pools Sink Markets (Robert Wood Johnson Foundation, Aug. 16, 2017). And states with exchanges are also those that expanded Medicaid, whereas most federal exchange states did not. Expansion removes the lowest-income segment of the population from the marketplaces — those between 100 percent and 133 percent of poverty — which, because of their worse health, lowers somewhat the average claims costs for the private insurance market. A. P. Sen and T. DeLeire, The Effect of Medicaid Expansion on Marketplace Premiums, ASPE Issue Brief (U.S. Dept. of Health and Human Services, Sept. 6, 2016).
2 For instance, states can opt for tighter regulation of non-complying short-term plans and association health plans. Georgetown University Center on Health Insurance Reforms, State Options to Protect Consumers and Stabilize the Market: Responding to President Trump’s Executive Order on Association Health Plans (Georgetown University Health Policy Institute, Dec. 2017); and Georgetown University Center on Health Insurance Reforms, State Options to Protect Consumers and Stabilize the Market: Responding to President Trump’s Executive Order on Short-Term Health Plans (Georgetown University Health Policy Institute, Dec. 2017). And states could implement their own version of, replacement for, the individual mandate. N. Bagley, “The Tax Bill Destroys an Important Part of Obamacare. The States Can Save It.,”Vox, Dec. 14, 2017.