Obamacare Exchanges Struggle to Foster Competition

In the months leading up to the passage of
Obamacare, President Obama often pitched the law as a way to
increase competition in the health insurance market. Here’s what
the president said
during a September 2009 speech to Congress, for
example: 

My guiding principle is, and always has been, that consumers do
better when there is choice and competition. Unfortunately, in 34
states, 75% of the insurance market is controlled by five or fewer
companies. In Alabama, almost 90% is controlled by just one
company. Without competition, the price of insurance goes up and
the quality goes down. And it makes it easier for insurance
companies to treat their customers badly – by cherry-picking the
healthiest individuals and trying to drop the sickest; by
overcharging small businesses who have no leverage; and by jacking
up rates.

But for many Americans, there’s still very little competition in
the individual insurance market. As The Wall Street
Journal
reports today:

Consumers in 515 counties, spread across 15 states, have only
one insurer selling coverage through the online marketplaces, the
Journal found. In more than 80% of those counties, the sole insurer
is a local Blue Cross & Blue Shield plan.

The health insurer cherry-picking President Obama described back
in 2009 is a real phenomenon. But if anything, Obamacare gives
insurers even more incentive to avoid the sick. That’s because the
law greatly restricts the way insurers can charge based on age and
health history. The result is the insurers end up competing to
attract healthy people (who are cheaper to serve), and looking for
ways to avoid the sick (who are more expensive). That’s exactly
what’s happened across the exchanges. As the Journal
notes:

Aetna targeted areas with stable levels of employment and income
to attract desirable customers to its marketplace offerings, Chief
Executive Mark Bertolini said last fall. “We were very careful to
pick the markets” where the insurer could succeed, he said.

Even still, it has proven difficult to attract a profitably
healthy cohort of individuals into exchange plans. Bertlolini

said last week that Aetna’s exchange plans would lose money this
year. And he’s suggested that eventually, the company might
pull out of the exchanges entirely—leaving an individual market
with even less competition than exists now.