Health Insurance Markets Perform Better in States That Run Their Own Marketplaces

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In spite of actions by Congress and President Trump that undermine parts of the Affordable Care Act (ACA), reports of the law’s death are greatly exaggerated, as Mark Twain might have said. Enrollment in the ACA’s subsidized marketplace exchanges remains strong, and coverage remains available throughout the country. Not all insurance markets have remained as resilient as others, however. It appears that attempts to undermine the ACA have had greater effects in some locations than in others. In particular, analysts have noted that insurance markets remain healthier in the 17 states that run their own insurance marketplaces than in those that rely on the federal marketplace. We use newly released federal data to explore this difference between states.

Lower ACA Individual Market Premiums, Claims, and Costs in States with State-Run Marketplaces

In the individual market, insurers projected premiums for ACA-compliant coverage in 2018 that averaged 21 percent higher ($633 per month vs. $526 per month) in states using the federal marketplace than in those running their own marketplaces. Comparing these numbers to those from last year, insurers’ premium projections increased 68 percent more on average in federal marketplace states than in states with their own marketplaces ($135 per month vs. $82 per month).

These greater projected premiums in federal marketplace states continue a trend that has existed since near the beginning of the marketplaces. During the second year of the ACA marketplaces (2015), rate increases between the two sets of states were similar, but thereafter they began to diverge. In 2016, 2017, and 2018, insurers had greater premium increases in states using the federal marketplace than in states operating their own, with differences averaging 6 percentage points a year . Notably, the differences in rate increases were substantially greater for 2018 (11 percentage points) than for the prior two years (3 percentage points), as the stability of health care markets was thrown into question in the wake of the Trump administration’s pronouncements and policies.

For 2018, the difference in premiums between the two sets of states is based in part on greater projected medical claims in federal marketplace states. Insurers in federal marketplace states projected claims for 2018 that were 14 percent greater ($478 per month vs. $419 per month) than in states with their own marketplaces. Insurers in the federal marketplace states also projected higher administrative costs and operating profits per member, resulting in a substantially higher proportion of premiums (24.7% vs. 20.2%) going to overhead rather than to medical claims.

States That Run Their Own Marketplaces Are Better Positioned for Negative Impacts of ACA Changes

As insurers were adjusting to recent changes in administrative policy as well as market conditions, insurance markets in states with their own marketplaces appear to be more resilient than those in states using the federal marketplace. Under state-based marketplaces, insurers were able to project lower claims costs and keep administrative and overhead costs lower than in other states.

This greater resilience to policy efforts to weaken or undermine the ACA could result from a combination of factors that these data do not illuminate, but which other analysts (noted above, and here) have suggested. Principally, states with their own marketplaces have a more proactive engagement with the ACA, which is likely to translate into a more balanced risk pool and a greater willingness of insurers to enter or remain in the market. For example, when the Trump administration shortened the open-enrollment period and reduced advertising for the federal marketplace, states with their own marketplaces extended their open-enrollment periods and supplemented federal funds for outreach and assistance.

Other factors may well be at play in this observed difference between states.1 But the consistently and increasingly lower premiums in state-based marketplace states suggest that, as additional changes are made to the ACA, these states may be better situated and more motivated to buffer the potential negative impacts. States that wish to avoid the worst effects of market destabilization flowing from the most recent set of federal health policy reversals might want to follow the lead set by states that operate their own marketplaces.2

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