Promoting Value for Consumers:Comparing Individual Health Insurance Markets Inside/Outside the

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Date: 06/02/16
Author: Mark A. Hall and Michael J. McCue
Publisher: The Commonwealth Fund
Type: Policy brief
Level: National

The new health insurance exchanges are the core of the Affordable Care Act’s (ACA) insurance reforms, but insurance markets beyond the exchanges also are affected by the reforms. This issue brief compares the markets for individual coverage on and off of the exchanges, using insurers’ most recent projections for ACA-compliant policies. In 2016, insurers expect that less than one-fifth of ACA-compliant coverage will be sold outside of the exchanges. Insurers that sell mostly through exchanges devote a greater portion of their premium dollars to medical care than do insurers selling only off of the exchanges, because exchange insurers project lower administrative costs and lower profit margins. Premium increases on exchange plans are less than those for off-exchange plans, in large part because exchange enrollment is projected to shift to closed-network plans. Finally, initial concerns that insurers might seek to segregate higher-risk subscribers on the exchanges have not been realized. The Affordable Care Act does not require insurers to sell through the new insurance exchanges, or marketplaces.1 Although subsidized insurance for individual policies is available only through the exchanges, insurers can choose to sell outside of the exchanges to people who do not qualify for or claim premium subsidies. Accordingly, two distinct segments have emerged in the individual market: coverage sold on the exchanges, mostly to people who qualify for a subsidy; and coverage sold through traditional channels to people who pay full price. This subdivision of the individual market provides an opportunity to explore how effectively the ACA exchanges are promoting value for consumers. To investigate this question, we use insurers’ filings with the federal government that demonstrate their compliance with the ACA’s rating rules (for details, see the About This Study box). In this issue brief, we analyze insurers’ filings for premium rates that took effect in 2016, for ACA-compliant products sold both on and off of the exchanges.

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