Insurer Competition In Federally Run Marketplaces Is Associated With Lower Premiums

Insurer Competition In Federally Run Marketplaces Is Associated With Lower Premiums

1. Paul D. Jacobs1,*, 
2. Jessica S. Banthin2 and 
3. Samuel Trachtman3

+Author Affiliations

1. ¹Paul D. Jacobs (Paul.Jacobs@ahrq.hhs.gov) is a senior service fellow in the Division of Research and Modeling at the Agency for Healthcare Research and Quality, in Rockville, Maryland.
2. ²Jessica S. Banthin is deputy assistant director of the Health, Retirement, and Long-Term Analysis Division of the Congressional Budget Office, in Washington, D.C.
3. ³Samuel Trachtman was an analyst in the Health, Retirement, and Long-Term Analysis Division of the Congressional Budget Office when this research was conducted. He is currently a graduate student in the Travers Department of Political Science at the University of California, Berkeley.

1. ↵*Corresponding author

Abstract

Federal subsidies for health insurance premiums sold through the Marketplaces are tied to the cost of the benchmark plan, the second-lowest-cost silver plan. According to economic theory, the presence of more competitors should lead to lower premiums, implying smaller federal outlays for premium subsidies. The long-term impact of the Affordable Care Act on government spending will depend on the cost of these premium subsidies over time, with insurer participation and the level of competition likely to influence those costs. We studied insurer participation and premiums during the first two years of the Marketplaces. We found that the addition of a single insurer in a county was associated with a 1.2 percent lower premium for the average silver plan and a 3.5 percent lower premium for the benchmark plan in the federally run Marketplaces. We found that the effect of insurer entry was muted after two or three additional entrants. These findings suggest that increased insurer participation in the federally run Marketplaces reduces federal payments for premium subsidies.