Obamacare Exchanges Struggle to Foster Competition
In the months leading up to the passage of Obamacare, President Obama often pitched the law as a way to increase competition in the health insurance market. Here's what the president said during a September 2009 speech to Congress, for example:
My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. Without competition, the price of insurance goes up and the quality goes down. And it makes it easier for insurance companies to treat their customers badly – by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates.
But for many Americans, there's still very little competition in the individual insurance markets created by Obamacare. As The Wall Street Journal reports today:
Consumers in 515 counties, spread across 15 states, have only one insurer selling coverage through the online marketplaces, the Journal found. In more than 80% of those counties, the sole insurer is a local Blue Cross & Blue Shield plan.
The health insurer cherry-picking President Obama described back in 2009 is a real phenomenon. But if anything, Obamacare gives insurers even more incentive to avoid the sick. That's because the law greatly restricts the way insurers can charge based on age and health history. The result is the insurers end up competing to attract healthy people (who are cheaper to serve), and looking for ways to avoid the sick (who are more expensive). That's exactly what's happened across the exchanges. As the Journal notes:
Aetna targeted areas with stable levels of employment and income to attract desirable customers to its marketplace offerings, Chief Executive Mark Bertolini said last fall. "We were very careful to pick the markets" where the insurer could succeed, he said.
Even still, it has proven difficult to attract a profitably healthy cohort of individuals into exchange plans. Bertlolini said last week that Aetna's exchange plans would lose money this year. And he's suggested that eventually, the company might pull out of the exchanges entirely—leaving an individual market with even less competition than exists now.
