Will Health Insurance Exchanges Make a Difference?

July 9, 2013 at 4:38 PM 1 comment


With the health insurance exchanges to be up and running in less than three months, many people still wonder how effective they will be at lowering premiums due to increased competition among insurers and ease of consumer access to a variety of insurance products.

That being said, the market share of the largest insurer in each state varies. How many states do you think have a single insurer with a market share of more than 55%?

a) 24

b) 8

c) 42

See below the map1 to find out:

market share

Answer:  a) 24 states

As of 2010, this diagram shows that the majority, 74%, of states are oligopolies, led by one or two insurers. Therefore, there isn’t much competition between insurers in most states, which could affect premium levels.

One goal of the health insurance exchanges is to provide easy access for consumers to more insurance products, especially in states that are currently served by only a few insurers. As of May 2013, the majority of states with federally-based exchanges has at least one new carrier that plans on joining the market.2  By providing new options for consumers to choose from, healthcare policy makers hope to see increased competition and therefore lower premiums than might otherwise exist.

However, as mentioned in one of our previous blog entries,  Your Customers are Living in the Wrong State!, there is a wide discrepancy in the number of health plans offered per state. For example, in California, there are currently 13 plans set to participate in their health exchange, while in Mississippi, there are only two that will be offered in their exchange. Although not guaranteed, for those states like California that have multiple options, there is a greater chance of increased competition, and in turn, lower premiums within the exchanges, than for those states with only a couple options. And for states like Mississippi who won’t offer as many plans, the goal of creating competition among the exchanges doesn’t seem likely.

If premiums raise, healthcare manufacturers will most likely be affected negatively. This is because with higher premiums, consumers won’t have as much money left over to spend on deductibles and co-pays for manufacturers’ products than if they were faced with lower premiums.

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1http://kff.org/health-reform/slide/market-share-of-largest-insurance-carrier-in-the-individual-insurance-market-2010/
2http://www.nytimes.com/2013/05/31/health/health-law-is-fostering-competition-administration-says.html?_r=0

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Entry filed under: Healthcare Economics, Healthcare Reform, Insurance Design. Tags: , , , , .

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