Insurer monopolies lead to higher health insurance premiums

Healthcare premiums have been rising rapidly over the past two years, but not all markets are seeing the same rates of inflation. Areas with fewer providers are reporting higher premiums than other markets, according to a recent study published in Health Affairs.

It may not be surprising that more competition leads to lower prices, but the impact of market competition on premiums for consumers has been minimal in previous studies.

Premium increases are due, in part, to the health of enrollees, but insurance market power is the most important predictor of premium levels and growth rates, according to Jessica Van Parys, assistant professor of economics at Hunter College City University of New York in New York City and author of the report.

Because more than 40 percent of all rating areas in states with federally regulated marketplaces have just one insurer, premiums are likely to continue rising, she concluded.

Losing just one insurer from a marketplace increased premiums just 3 percent between 2014 and 2015–an insignificant sum. However, premiums have risen more and more quickly since 2015, without much research into the impact of fewer insurers in some markets.

The study found in 2016, as insurers dropped out of Affordable Care Act (ACA) marketplaces, premiums started to diverge from those in areas with higher competition, a trend that continued to 2018. While the risk-adjustment program has aimed to correct the likelihood of risk selection among providers, insurers still weren’t placated, and the methodology used in the program may actually still leave room for risk selection and higher premiums, according to the study.

Another reason for higher premiums could be the “imperfect competition” sparked by the market. In the early years of ACA implementation, insurers may have artificially kept premiums low to attract market share, acknowledging early losses in the process. Once they gained market share or became monopolies, they could raise prices. This pricing move may actually have been part of the strategy all along, inhibiting true competition.

However, major barriers still remain in monopolized markets. Otherwise, new entrants would swoop in and undercut the existing insurer with the same strategy.

“Competition is no longer viable in any areas of the country,” the study reads.

A major concern in the future is that monopolist insurers will continue to leverage their market power to propose large premium increases, with state regulators approving them to keep markets stable. Continued research in insurer competition is necessary to understand the impact on enrollment, costs and quality, Van Parys wrote.