Market forces marshal as start of exchange marketplace draws nearer
The rest of this year and next will reveal in greater detail how competing market forces under the Patient Protection and Affordable Care Act (PPACA) play out in the individual and small group market segments. Health plans are making their opening gambit by warning in a Wall Street Journal story published this week that premiums will rise in response to new market rules that take effect in January 2014 requiring them to offer specified categories of benefits and use community-based rating instead of medical underwriting.
The PPACA’s managed competition scheme for these market segments will create countervailing downward pressure in addition to the reinsurance and risk adjustment mechanisms mentioned in the WSJ story to offset pressure for higher rates to account for taking on higher risk populations under community rating. That scheme is based on concentrating much of the market in state health benefit exchanges that will aggregate the purchasing power of individuals and small businesses, spurred along in the individual segment with generous income tax subsidies for those with adjusted gross incomes at 400 percent and lower of the federal poverty level. Small employers won’t get these subsidies (enhanced income tax credits will be available for very small, low wage employers) but would be able to pool their market power into one large purchasing entity, the exchanges’ Small Business Health Options Program (SHOP).
The test of that aggregated market power will begin over the next few months in about a half dozen states where the exchanges have opted to actively screen and select which plans can participate in their individual and SHOP marketplaces. Of these, the most illustrative market is the nation’s largest health insurance market — California — where that state’s exchange, Covered California, has established standardized benefit designs and cost sharing levels for plans it will offer. Covered California is utilizing a competitive bidding and negotiation process based on these standard designs that provides incentive to plans to moderate premiums.
Also part of the PPACA managed competition model and designed to boost competition to exert downward pressure on premiums are the large Multi-State Plans administered by the federal Office of Personnel Management. Multi-State Plans will also be sold on the state exchange marketplaces, initially available in 60 percent of the states once introduced. The PPACA mandates at least two Multi-State Plans be offered in each state exchange and be available in all state exchanges by 2017. Plus the PPACA allows cooperative health plans owned and operated by consumers to compete in the exchange marketplaces with investor-owned commercial health plans.