The nation’s largest health insurers are far from leaping at the chance to join new state health insurance exchanges under President Barack Obama’s reform law, making it likely that some markets will have little or no competition next year.
These new insurance marketplaces are due to open their doors on Oct. 1 to enroll millions of Americans who have not been able to buy coverage on their own.
A key principle of Obama’s health reform is that individuals will have a robust offering of insurance plans to choose from, and that competition for new customers in each state will help keep prices down for consumers.
But health insurers, some of whom fought the law before it was passed and continue to lobby to reverse parts of it, are wary. In recent days, executives at the four largest U.S. health insurers say they are likely to sell insurance plans on less than a third of the exchanges, reluctant to venture out beyond the states where they already offer coverage.
The U.S. Department of Health and Human Services, which is overseeing the exchange effort, said that it is confident the marketplace will be competitive.
“Many people will receive up-front financial assistance to make insurance more affordable, plus many will be new or first time customers for insurance companies,” said Erin Shields Britt, a spokeswoman for the Department of Health and Human Services.
There are a number of reasons for caution, company executives say. These include a lack of clarity about the kind of prices they can charge and the number of plans they can sell on each exchange, the expectation that the program is only expected to reach about 7 million people nationwide in its first year and uncertainty over whether all of the exchanges will be ready in time.
As a result, heavily populated states where many insurers already sell plans now, such as California and New York, will have competing products for the exchanges when health reform takes full effect on Jan. 1. But states whose existing insurance markets have little or no competition, like Alabama and Alaska, may not see much of a difference, healthcare analysts say.
“We do think the uptake may be slower than maybe people thought six months ago or a year ago in terms of what is going on in the first year with the exchanges,” Aetna Chief Financial Officer Shawn Guerin said in an interview.
Under the 2010 Patient Protection and Affordable Care Act, often called Obamacare, health insurance marketplaces must be available in every state in 2014. These exchanges, which will enable all individuals and small businesses to buy health insurance, are expected to bring in up to 24 million people by 2016, according to the Congressional Budget Office.
UnitedHealth, the largest U.S. insurer, said it would end up in as few as 10 exchanges and only up to 25 maximum.
Aetna on Tuesday said that it was not planning a “land grab” when it comes to expanding through the exchanges and has submitted applications to offer plans in 14 states.
WellPoint, which operates Blue Cross Blue Shield licenses in 14 states, said it plans to enter exchanges in those states, but that there is uncertainty around timing of the overall rollout of exchanges. Humana Inc. said it is participating in 14 states. Cigna said it will participate in a “limited” number of markets that it has already zeroed in on for growth.
WellPoint Chief Financial Officer Wayne DeVeydt said in an interview that the company is still waiting to hear how the states will handle pricing and ratings of applicants, how many competitors will be allowed on the exchanges in some states that plan to limit numbers and how many plans they can offer in others that are more permissive.
States can choose whether to opt for a “clearinghouse” type exchange where all insurers are welcome to apply, while others have decided to take a more active role in choosing who can sell plans.
DeVeydt described a race against time for insurers to have all the information they need in the next two to three months to finalize products, have them approved by regulators and inform brokers of what they will be selling. “If you back it out from October, you almost have to have clarity in the next 60 or 90 days, or you can’t have a (Jan. 1) rollout.”
The federal government has stuck by that Jan. 1 deadline, even as it contends with the tight deadlines and technology requirements to get the exchanges going. It has plans to run 33 exchanges, while 17 states have said that they will run their own. On Tuesday, the government said it would give insurers three more days to file their applications for the federally run exchanges.
Last week, Gary Cohen, the senior official overseeing the federal insurance exchanges, said 140 health insurance carriers had started the process for an application, but did not provide details on how they were distributed by state.
Secretary of Health and Human Services Kathleen Sebelius said last month that she expected competition on the exchanges in part because they will have lower administrative costs for insurers and the marketing will be done by the exchanges.
“What I think we are going to see is a very different kind of competitive market and that competition in and of itself should help moderate prices,” Sebelius said during an event moderated by Reuters at Harvard School of Public Health. “We have seen that happen in the market in the last three years and I think that is going to continue.”
Large states with vibrant markets and who are ahead on setting up their exchanges, like California and Washington, have received applications from dozens of insurance companies.
Still, states dominated by only one health insurer – places like Alabama, Alaska and Delaware – could end up in the same situation they are in now, according to health economists and based on data from states whose application deadlines have passed.
One possible outcome for the states dominated by few insurers is that companies which administer the government’s Medicaid plans for the poor will apply to provide insurance on the exchanges, said Linda Blumberg, health economist at the Urban Institute.
Consumers who apply on the exchanges for healthcare will be able to find out online if they are eligible based on their income for Medicaid or for a subsidy to buy private insurance.
Caroline Pearson, vice president for health reform at consulting firm Avalere Health, said the barriers for insurers are high to break into a new insurance market.
“To come in as a new carrier, do marketing to build your brand name, and build a provider network from scratch is very, very hard,” she said.
(Additional reporting by David Morgan in Washington, D.C. and Sharon Begley in New York; Editing by Michele Gershberg and Leslie Gevirtz)