Lack of competition in Obamacare

by Dan Way, Carolina Journal, September 16, 2013.

North Carolina consumers could be the biggest losers after one of three insurance carriers that applied to participate in the Obamacare federal exchange announced its decision on Thursday to withdraw from the government-approved marketplace, health experts say. They cite the lack of competition in providing coverage on the individual market for consumers who will be required to purchase health insurance when the federal law takes effect in January.

“We have a de facto monopoly in our state. I think it’s a very bad thing” on several levels, said Michael Cousins, a North Carolina-based nationally recognized expert in evaluating health care outcomes, referring to the 85 percent of the individual insurance market Blue Cross Blue Shield of North Carolina already controls.

“I think it is problematic that there are not stronger forces willing to step in” and offer insurance plans on the exchange, said Bill Atkinson, WakeMed Health president and CEO. “I would say given the magnitude of the dilemma, it’s going to take four or five to [offer competitive products]. We ended up with three, and one has dropped out, and it was relatively small,” Atkinson said.

FirstCarolinaCare Insurance Company’s decision to pull out of the federal exchange “was not a step taken lightly,” Kenneth J. Lewis, company president, said Thursday in announcing the reversal.

“When we originally proposed participation in the exchange, we recognized that there were many unknowns for all of us. However, after months of review, there continue to be uncertainties in the Exchange implementation and processes for insurers,” Lewis said in a written release.

The Affordable Care Act, Obamacare’s official title, requires all individuals to have insurance or to pay a penalty tax, starting Jan. 1. Uninsured individuals may purchase plans on the government exchanges, and potentially qualify for significant tax credits, depending on income.

With just 14 days before the Oct. 1 date the federal exchange is to begin enrollment operations, only BCBSNC and Coventry Health Care of the Carolinas maintain an active interest in offering insurance plans on the exchange.

“It’s reducing choice, and it’s putting more money in the pockets of the big dominant plans, and that doesn’t add value to the marketplace, it just adds value to the owners of that plan,” Cousins said after FirstCarolinaCare dropped out. Moreover, neither BCBSNC nor Coventry has received federal approval to sell their products on the federal exchange.

“There are two ways it reduces choice. The first is obviously by just not having another carrier, at a high level we have less choice now,” Cousins said.

By having fewer carriers offering plans on the exchange, there will not be as much variance in the four so-called “metal plans” that Obamacare mandates. The plans must meet specific actuarial values of coverage — platinum (90 percent), gold (80), silver (70), and bronze (60). Insurers will cover the actuarial value of the plan, with the balance of the risk assumed by ratepayers through premiums.

While every carrier will use a similar “metal” label to describe their plans, Cousins said, each one “can get to that actuarial value differently.” BCBSNC will offer a gold plan providing coverage of certain procedures and picking up 70 percent of the costs. However, he said, “Coventry also has a gold plan that by regulation also covers 70 percent of expenses. But how they get to 70 is through a different mix of services in coverage, so it really does reduce options” to consumers.

“A lot of people get confused. They think, ‘Well, one gold plan is like another,’” because the federal government requires specific minimum levels of coverage, he said. “They’re definitely not the same” because each has additional mixes of service.

“The other reason it’s bad is because now it gives the remaining two carriers more negotiating power with hospitals and physicians, which at the end of the day results in more dollars going to profit because there’s less competition,” Cousins said.

“The more that the No. 1 carrier in the state dominates, the more [it] can squeeze the delivery system of hospitals,” he said.

BCBSNC now covers 85 percent of the individual insurance market in North Carolina and likely will remain the dominant player. That “reduces their need to compromise,” Cousins said.

Atkinson voiced no concern about the providers participating on the exchange.

“I think we’d like to see more people involved, and more importantly consumers ought to have a choice, but it has nothing to do with whether the groups that are going to do this are good,” Atkinson said. “It’s going to take a lot more to do this right.”

The experts interviewed by Carolina Journal expressed several reasons for the small number of players in the forthcoming market for individual coverage.

“The return on doing this model is less than the return on traditional insurance,” Atkinson said. “I’m not sure a lot of people are trying to run down an avenue where they get paid less by the government than they get paid today by businesses.”

Cousins thinks a common theme running through many states has kept an array of insurers out of the government marketplaces: The earliest applicants for insurance “are expected to be the sicker people and the poorer people because they don’t have coverage, and so there’s a little bit more risk.”

Many carriers are nervous about being the first out of the gate because of so many uncertainties in how the federal health reform will work.

In North Carolina, Cousins said, BCBSNC is less nervous “because they already have experience in the marketplace. They’re so dominant that they know what they’re getting into. They have more information than the other carriers, and so because they have more information they can price better, and so the risk for them is smaller than for anyone else.”

Katherine Restrepo, health and human services policy analyst for the John Locke Foundation, had similar thoughts. Like Cousins, she also pointed to special considerations Blue Cross Blue Shield receives that are not available to other carriers.

“Blue Cross Blue Shield is nonprofit, so maybe they have that greater leverage over other private, for-profit insurance companies by offering cheaper rates because they have tax exemptions, tax breaks,” Restrepo said.

With just two insurers, North Carolina has among the fewest companies offering plans on an exchange. New York has 16, California and Ohio have 12, Oregon has 10, and Virginia has nine. Even much smaller states by population have more exchange participants than North Carolina. For example, New Mexico has five, Nebraska has four, and Montana and South Dakota each have three.

“United, Cigna, and Aetna [which also owns Coventry] are the three biggies that have pulled out of marketplaces” in a number of states, Restrepo said. Aetna announced last week it was leaving the New Jersey exchange, marking the sixth state the insurance giant has dropped out of after announcing it planned to provide coverage.

“They’re waiting to see how these marketplaces play out, how many people enroll, because the Obama administration wants these marketplaces to be financially [workable]. They all have to be financially afloat by 2015, so they’re doing incremental goals,” Restrepo said.

With big carriers abandoning the exchanges, she said, it was not unusual for FirstCarolina to withdraw from the North Carolina exchange.

“FirstCarolina wouldn’t have been competitive with Blue Cross Blue Shield to begin with because a) they’re only operating in six counties and b) the insurance premiums [would have averaged] 20 percent higher for the cheapest plans compared to the cheapest plans that Blue Cross Blue Shield offers,” Restrepo said.