California’s approach to the healthcare marketplace, Covered California, has successfully held down premium costs because it has authority to select health insurers.
California’s approach to the healthcare marketplace, Covered California, has successfully held down premium costs because it has authority to select health insurers, according to research published in Health Affairs. Richard Scheffler, professor of health economics and public policy at UC Berkeley School of Health, in collaboration with New York University (NYU)’s Robert F. Wagner Graduate School of Public Service, concluded that these negotiations successfully constrained premiums during the early years of the marketplaces.
Covered California is one of the few health insurance marketplaces set up through the Affordable Care Act (ACA) that directly negotiates premiums with insurers. Scheffler said the research showed the direct impact on premiums of hospital market concentration, and the potentially critical role marketplaces can play for consumers. Covered California’s ability to negotiate rates, networks, and product quality with insurers is important if consumers are going to get the best value.
Scheffler and his colleagues studied the growth in health insurance premiums from 2014 to 2015 in 2 very different state-based ACA marketplaces: Covered California and NY State of Health. New York chose to permit all willing insurers to join the marketplace, whereas California selected 12 insurers to participate (based primarily on rates) and rejected 20 insurers who had been interesting in offering coverage.
The researchers were motivated to conduct the study in the wake of the July 2015 announcement that 2 major health plan mergers were under consideration: Anthem and Cigna, and Aetna and Humana. If these mergers were to occur, the field of large national health plans will decrease from 5 to 3. As medical providers are also merging, they seek to uncover the impact such consolidations will have on consumers. In particular, they want to know how health insurance premiums are likely to change as a result.
“The ACA marketplaces provide a natural laboratory for studying the effects of competition and market power,” they noted.
The data showed that areas with less hospital competition in both states saw larger premium increases in 2014-2015, but the effect of insurer competition differed greatly across the states. In New York, premiums grew faster in the areas with less insurer competition; conversely, in California, areas with less insurer competition saw slower premium growth than areas with more insurer competition. The researchers concluded that the ability of the California marketplace to exclude insurers appeared to give it leverage to force insurers in concentrated markets to pass savings on to consumers that were obtained from strong bargaining positions with providers.
“Our study demonstrates the potential of allowing third parties to use their purchasing power to ensure that negotiating better health care prices benefits consumers, not insurers,” co-author Sherry L. Gliad, dean of and professor of public service at the NYU Robert F. Wagner School of Public Service, said in a statement. “The choice between regulation and competition is a false one. To best manage our health care system, we need both.”
The authors say it is critical to further evaluate the current effectiveness of the marketplaces and to find ways in which the marketplaces could be improved.