Marketplace Competition at Work: Examples of the Health Care Law Lowering Premiums

By Richard Kronick, Deputy Assistant Secretary for Health Policy

The Affordable Care Act brings an unprecedented level of transparency and competition to the health insurance market by requiring insurance companies in every state to publicly justify rate increases of 10 percent or more.  Experts evaluate large proposed increases to make sure they are based on reasonable cost assumptions and solid evidence, and insurance companies must publicly justify and post on their website any unreasonable rate increases. 

Recent reports have shown rate review’s moderating effect on proposals for premium increases. The fraction of requests for insurance premium increases in the individual market of 10 percent or more plummeted from 75 percent of all requests in 2010 to 34 percent in 2012 and to an estimated 14 percent in preliminary data for 2013.   

These reports examine proposed rate increases.  But in just another example of how transparency around rate increases is driving market competition, in many cases, issuers finalized a rate that was even lower that their initial proposal. 

Here are just a few examples: 

  • In Oregon, two issuers lowered their proposed 2014 individual market premiums within days of the State of Oregon’s public release of 2014 premium information.  In addition, through the state’s rate review process, the Oregon Insurance Division lowered proposed rates for individual plans from a few percentage points to 30 percentage points. For small employers, the Oregon Insurance Division lowered rates from a few percentage points to 12 percentage points.
  • In the District of Columbia, United Healthcare submitted a 10 percent rate reduction for small businesses after rates were posted publicly.
  • The Green Mountain Care Board, which runs the Health Insurance Marketplace in Vermont, lowered proposed rates from Blue Cross Blue Shield of Vermont and MVP Health Care by 4.3 percent and 5.3 percent, respectively.
  • Through its rate review process, the Rhode Island Office of the Health Insurance Commissioner lowered proposed rates in the individual market by 5.2 percent for Blue Cross Blue Shield of Rhode Island, and by 9.6 percent for Neighborhood Health Plan of Rhode Island. The Office of the Health Insurance Commissioner also lowered proposed rates in the small group market by between 1 percent and 8.2 percent.

Overall, evidence suggests that more than half of rate requests for 10 percent or more ultimately resulted in customers receiving either a lower rate increase than requested or no hike at all.

Additional improvements are coming in 2014. The Health Insurance Marketplace opens for enrollment on Oct 1, allowing apples to apples comparisons of health insurance plans, greatly increasing competition and transparency in the individual and small group markets.

The early evidence on premiums is very encouraging for consumers and employers.  In six states with available data on premiums in the small group market, average small group premiums proposed for 2014 are close to 20 percent lower than the premiums that would have been expected in the absence of the Affordable Care Act.  And in the individual market, proposed premiums appear to be substantially below the estimates used by the Congressional Budget Office in estimating the effects of the Affordable Care Act, strongly suggesting that greater competition and transparency are resulting in substantial savings for consumers.