My talking head chats with Roby Brock about the "private option" and carrier competition on the Arkansas Health Insurance Marketplace (HIM). One issue we touch on is the dominance of Arkansas Blue Cross Blue Shield, which controls more than 75 percent of the market today. While having five carriers on the HIM should make for a relatively competitive market, it's unclear whether or not the HIM will help other carriers make a dent in that market-share domination. One big question is whether the "private option" consumers on the HIM — who won't be paying attention to price since the government will be paying for their premiums — will flock to Blue Cross because of brand-name recognition.
Roby points out that while companies won't be competing on price for that pool of consumers, they'll compete in other ways. Consumers can comparison shop between different benefit packages and find the one they like best. The HIM is a regulated marketplace and there are minimum standards of coverage that all plans have to offer, but it's still a fair point that customers will be potentially be looking at more than just a plan's brand name. The trouble is, if plans are competing to offer the best benefits to customers who don't care what a plan costs, that doesn't bode well for keeping premium prices low! Austin Frakt at the Incidental Economist touched on this issue back when the "private option" policy framework first emerged and ignited discussion of how much this approach would cost compared to traditional Medicaid expansion.
The vast majority, about 80-85%, of insurers’ spending is on medical care. The customary ways to substantially reduce costs is to lower payment rates to providers or reduce the volume of care insured. Either one of these reduces policyholders’ access to care. This, in large part, is why Medicaid is so cheap. Of course, policyholders won’t like this. Nobody likes to be told, “No.” The way they are compensated for less in the market is through lower prices. People are willing to get less if they pay less. Sometimes they prefer it, since they have other uses for their money.
But wait, who’s paying the bills here? It’s not individuals, mostly. It’s the government. ...There is very little motivation by consumers to willingly trade less generous coverage for lower cost. Under such conditions, competition can’t drive costs down very far. Consumers won’t stand for it when they’re paying with someone else’s money. A plan that tries to go too far will likely lose market share and experience reduced profit. This is not a set-up in which I would expect private plans in competition to beat Medicaid on price. (It doesn’t happen in Medicare Part D either. As beneficial as competition has been in that market, it has not brought prices down to the level paid by Medicaid or the VA.)
I meant to mention in the interview that there was a plan to build in a competitive effect for the expansion pool, but a quiet policy decision from the Beebe administration nixed it, at least in Year One. The idea was to create "competitive bidding" rules — the government would only pick up the premiums for "private option" consumers for, say, the two cheapest plans. That would mean less choice for those consumers, but a very strong incentive for companies to compete for access to the 200,000 low-income Arkansans in the "private option" pool.
As DHS Director John Selig explained to me, policymakers decided against competitive bidding in the first year because they wanted to focus on bringing in carriers and building a strong market. That's a fair argument, but it's a decision that leaves some big questions about competition, which was one of the major selling points about the "private option." Either way, it was a major policy choice that was made under the radar — in a long day of testimony on the "private option" before the Public Health committee last month, competitive bidding never came up.