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The Influence of Choice and Competition in Relation to Individual Insurance in Health Reform Proposals

Wallace Stephens
Establishing competition between insurance companies is believed to be the most effective way to lower the total cost of premiums, explains a new issue brief from The Commonwealth Fund.
As the Affordable Care Act (ACA) quickly approaches the 10-year anniversary of its enactment, accumulated evidence allows a broad view on how future modifications can improve the American healthcare system. While the US political landscape continues to suggest differing approaches to healthcare reform, both Republicans and Democrats realize that choice and competition amongst insurance providers can offer more affordable premiums, encourage more Americans to obtain coverage, and achieve greater satisfaction among enrollees.

Establishing competition between insurance companies is believed to be the most effective way to lower the total cost of premiums, explains a new issue brief from The Commonwealth Fund. Research suggests there are a multitude of ways that changes to the insurance marketplace could both promote competition among providers and offer consumers more options in choosing their coverage plans and primary care institutions. Previous research has shown that “for each additional insurer competing in a marketplace, premiums fell by between 2.8% and 4%,” the author noted. In comparison, insurers have been known to significantly raise the cost of coverage when competition is low or absent. According to the paper, a trend in marketplaces from 2014 through 2016 showed an estimated 7.4% rise in premiums when the number of competing insurers fell below 3.

In some circumstances, the availability of more choices among competing marketplace health plans can have a negative effect on consumers. Adverse selection happens when a high number of individuals requiring frequent care purchase insurance plans while those who seldom require medical attention simultaneously opt out of their coverage. As a result, insurance providers assume greater risks, raise the cost of premiums, and may only offer plans with limited coverage.

When consumers are faced with too many choices, the probability of them making an error in choosing coverage dramatically increases. The author wrote, “A large body of research has shown that few people buying health insurance have a complete grasp of even the most basic parameters of benefit design such as copays, coinsurance, deductibles, and out-of-pocket maximums. As more options become available, a common problem faced by consumers is the likelihood of making an error choosing complex products, which can weaken benefits gained from competition among insurers.”

To prevent adverse selection or an overwhelming number of choices from negatively affecting consumers, the healthcare system must be managed and regulated to by the government to maintain fairness.

While both political parties disagree on many aspects of the ACA, one priority they agree is vital for creating a better and more accessible healthcare system is offering consumers more choices of insurers. However, they continue to disagree on the topic of what constitutes choice. Democrats hope to establish a system that promotes Medicare for All and allow consumers to have a choose their physicians and hospitals whereas Republicans aim specifically toward diversifying and offering more options regarding healthcare plans. It can be inferred that both political parties must reach a compromise before healthcare reform can become a reality.

“Designing health insurance markets requires a regulatory platform that equips consumers and sellers with information, supports risk protection, and offers incentives for efficient choice and supply,” the author wrote. “Regulations must be flexible and subject to modification as conditions in individual markets change. Realizing the promise of markets for health insurance will require greater unity of purpose from our political leadership and administrative agencies.”

Research has shown that offering more choices to consumers and creating competition among insurance providers is essential to reforming the healthcare system. Reviewing data accumulated since the inception of the ACA, it can be determined that marketplaces have the capability to deliver more affordable, diverse plans, offer increased access to care, and achieve higher levels of consumer satisfaction when they are properly structured and managed through regulation, the author noted.

Although politicians and policy makers continue to debate the best methods of structuring healthcare reform, it is possible that a viable compromise may rest closely on the horizon.

“In considering policy design, I appeal to three guiding principles: whenever possible, set conditions that will yield robust competition for consumers; protect against adverse selection; and offer consumers salient information and support in making choices,” the author concluded.

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