We've spent a lot of time here in VoxCare talking about the possibly of "empty shelf" Obamacare counties: places where no insurers want to sell on the marketplaces.
Many readers have sent me the same question about those places: Why wouldn't an insurer want to come in and have a monopoly there? Shouldn't a government-subsidized marketplace be an alluring business opportunity?
Eighty-five percent of people who buy on the marketplaces, after all, get federal subsidies to help pay their premiums. Those people should not be price-sensitive shoppers. Their subsidies cap their monthly premium at a percentage of income. For example: Someone who earns $26,000 (200 percent of the poverty line) only has to pay 6.4 percent of her income on premiums.
To her, it doesn't matter if the actual monthly premium is $200 or $2,000. Her contribution is $138 (6.4 percent of her income). So why are there places in Iowa and Tennessee that are at risk of having no insurers at all? Shouldn't those be places where the only plan in town could make a nice profit?
This is something I've wondered about too, so I spent the past few weeks asking insurance executives about it. Here are some of the reasons they say they're not interested in being the only health plan in some of the at-risk marketplaces.
The opportunity is limited to a small group of health plans. Building an insurance network is a lot of work. You have to go door to door, from hospital to hospital, negotiating the prices you'll pay for hundreds of medical procedures.
The insurance plans that can take advantage of an Obamacare monopoly in 2018 are likely those that have already done the negotiating — the ones that already sell coverage in the area outside the marketplaces. Blue Cross Blue Shield of Tennessee, for example, could come into the Knoxville area that currently has no health plans signed up for next year. An enterprising health plan from out of state, however, has probably already missed the window. There isn't enough time left at this point to build an insurance market from scratch.
The markets wouldn't be a true monopoly. Let's say an insurance plan does come into a market where no one wants to sell coverage, and comes in with really high rates. There is always the possibility that another insurance plan could come in with just slightly lower rates and steal market share. There is no guarantee that an insurance plan will remain the only game in town.
There are limits on how much plans can charge. Insurance plans must send documents to the state insurance commissioner's office explaining why they are charging the prices they are charging.
These are typically long, complex documents written by actuaries that provide a detailed breakdown of the different factors taken into consideration by a health plan that wants to raise rates — things like how much they spent on prescription drugs in the past year or expected trends in medical cost.
Insurers do not have unlimited ability to raise their rates as high as they'd like. They could not submit a document like this that said, "We're increasing our rates 500 percent because we'd like to make a sweet profit." The regulatory filings insurers must offer put downward pressure on how much they can charge.
The marketplaces are still a risky bet this year. There is still lots of uncertainty about how the Trump administration will enforce the individual mandate or make cost-sharing reduction subsidy payments. Insurers just don't know what the 2018 marketplace will look like. There is the possibility that even with a significant rate increase, health insurance plans could still lose money.
"Insurers are notoriously risk-averse," says Sabrina Corlette, a research professor at Georgetown University who studies the marketplaces. "They're looking at an environment where we don't know what's going to happen with the Affordable Care Act subsidies."
For some insurers, the marketplaces aren't worth that risk. Most health plans do the majority of their business in health plans for large companies. To spend money to enter an individual market, pay actuaries to set rates, advertise the plans, and support consumers — the possibility of profit, from what I understand, sometimes isn't compelling enough when there is still a risk that insurers could lose money.
"I'm not sure you'd price high enough," one industry source says. "You might raise your rates $500 a month and it should be $1,000. You just don't know."