Study: Marketplace Competition Doesn't Improve Health Insurance Choice

A new study by the Rand Corp. suggests competition among health plans does not necessarily lead to lower costs for consumers.

The study found consumers in middle-tier plans were faced with significantly higher deductibles in regions where plan options were plentiful versus regions where choices were relatively limited. The findings were reported in the Jan. 6 edition of Health Affairs.

“Our findings are somewhat paradoxical in that more choices in healthcare marketplaces may lead to higher out-of-pocket costs for many consumers,” said Christine Eibner, senior economist at Rand and the senior author of the study. “People who live in areas with more plan offerings may have to pay a higher premium to receive the same deductible when compared to people living in areas with fewer plan offerings.”

In the study, the annual deductible of the second-lowest-cost “silver” plan was nearly $1,000 higher in high-competition areas than in low-competition areas. For the purposes of the study, “high-competition” regions were those with 20 or more options. “Low-competition” regions were those with 13 or fewer plans. The authors speculate that the cause may be an attempt by insurers to lower the sticker price (monthly premium) of their plans in order to better compete. In other words, insurers lower their premium prices by raising deductibles and other fees.

Deductibles are not the only way being in a high-competition region appears to work against consumers. The study found the monthly premium difference between the second-lowest-cost silver plan and the average silver plan was $68 in high-competition areas, but just $15 in low-competition areas. Thus, people in low-competition states, such as California, Georgia, and Mississippi, would likely have an easier time upgrading than those in higher-competition states.

The authors suggest the government may need to alter its subsidy program to further subsidize plans in high-competition states, or even limit the number of plans available in a given region.

“The federal subsidy to buy health insurance is effectively more generous in states that have less competition in their marketplaces,” said Erin A. Taylor, the study’s lead author and a policy researcher at Rand. “This raises concerns about enrollees being able to select a plan that both has affordable premiums and provides sufficient protection against financial losses.”