Insurer Competition Contributes to Affordable Care Act Benchmark Premiums

The benchmark premium on the Affordable Care Act marketplace rose between 2022 and 2023 after years of decreasing, a study from the Urban Institute found.

Observing Affordable Care Act health insurance marketplace premiums in 2023, the researchers assessed 503 rating regions using data from Healthcare.gov and state-based marketplace websites.

From 2019 to 2022, premiums dropped on average 2.2 percent each year. However, from 2022 to 2023, the US average change in benchmark premiums grew 3.4 percent.

In 2019, the average benchmark premium was $468 for a 40-year-old, non-smoking Affordable Care Act marketplace enrollee. In 2022, the average was $438. By 2023, the average was $453.

“The 2023 increase is likely attributable to the strong economy and rising inflation. Inflation has increased labor costs throughout the economy, and the health care sector is not immune. Insurers need to anticipate an increase in claims costs from rising prices,” the researchers explained.

“There may also be expectations that the risk pool will improve following the end of the COVID-19 public health emergency. Individuals losing Medicaid and becoming eligible for Marketplace coverage are likely to be low-income workers and healthier than those who remain unemployed or out of the labor force. The increased competition seen in recent years in many markets should also dampen premium increases.”

The report noted that states that saw lower premiums had very competitive marketplaces or participating Medicaid insurers.

Twelve states had benchmarks that exceeded $500 per month, including Alabama, Delaware, New York, and West Virginia. These were characterized by having a couple of insurers per rating region and hospital concentration. States that had premiums under $400 per month—such as Colorado, Indiana, New Hampshire, and Virginia—tended to have high competition as well as a Medicaid insurer.

Another aspect of insurer competition that might have influenced premiums was which insurers were present. For example, if a state had a mix of Blue Cross Blue Shield, Medicaid, national insurers, and provider-sponsored plans, the state might be more likely to have lower premiums.

In particular, Medicaid’s participation in an Affordable Care Act marketplace rating region was associated with lower benchmark premiums.

“Medicaid and provider-sponsored insurers were either attracted to low-cost markets or effectively lower benchmark premiums, perhaps because they often have narrower networks and lower provider payment rates. The latter seems more plausible,” the researchers explained.

Among provider types, local and regional plan participation had the biggest upward influence on benchmark premiums, typically raising premiums by 0.329 percent. When Kaiser Permanente participated in a rating region, it exerted the greatest downward influence on benchmark premiums, lowering premiums by 4.946 percent on average.

Blue Cross Blue Shield participation in a rating region resulted in a 0.173 percent increase in benchmark premiums. But national insurers were associated with an average 3.159 percent decrease in benchmark premiums.

Having three insurers in a rating region decreased benchmark premiums by 1.93 percent. Having two or four insurers present boosted benchmark premiums by 0.724 percent and 0.148 percent, respectively. The area wage index increased benchmark premiums by 1.35 percent, while Medicaid expansion status could lower benchmark premiums by 2.426 percent.

The researchers also identified demographical differences. Rural areas had less competition compared to urban areas and, as a result, higher premiums.

Provider relationships had a significant impact on whether insurer competition would affect premiums. If one insurer is prevalent in a rating region and has a contract with the large providers in the area, they could stifle competition.

Lastly, the researchers addressed adding a public option to Affordable Care Act marketplace plans.

“In markets that have relatively low premiums because of competition or the presence of one or more Medicaid plans, a public option is likely to have little effect because most of the feasible savings are already captured,” they explained.

A public option might have more success in rural areas but even a public option health plan would run into problems contracting with a small pool of providers, barriers that employers and national health plans also face.