Did Obamacare Destroy Competition in the Private Insurance Market?

One of the biggest criticisms of the Affordable Care Act was that it would be the death of the private insurance marketplace. Opponents of healthcare reform cautioned that the law change would crowd out private innovation in the market and make insurance carriers less interested in competing.

If we take a closer look back at the progression of insurance company involvement in Illinois, I think we’ll find that not only was this not the case – but in reality, the reverse was true.

Prior to the 2014 open enrollment period, the small business market in Illinois was extremely limited. If you had fewer than 50 employees, the options for group coverage were four to five carrier choices (depending on your county). These companies continued to churn business, and employers would change carriers every two to three years as their premium rate increases continued to increase. There were significant barriers to entry - and every time we saw a new carrier attempt to provide competitive options, the larger more traditional players quickly chased them out of the state.

For sole proprietors and the self-employed, the outlook was even bleaker. There were two or three competitive options, and the underwriting guidelines were so rigid that even those plans were unrealistic for many individuals hoping to gain private insurance coverage.

Reviewing the change to the market, we see that sole proprietors and the self-employed saw the biggest gain in options. The opening of the ACA Marketplaces in 2014 offered up to seven carrier choices for individuals in some regions of Illinois. Although many of the players were familiar faces, one – Land of Lincoln - was brand-new to Illinois consumers. Land of Lincoln is a co-op (oonsumer oriented and operated), a new type of insurance organization made allowable by the ACA.

The federal government has now awarded nearly $2 billion in loans to help create 24 new CO-OPs in 24 states. The CO-OP sponsors - consumer-run groups, membership associations, and other nonprofit organizations - are now moving forward to offer health coverage in competition with established commercial and nonprofit insurance companies. (Health Affairs Policy Briefs)

What about small employers? While the SHOP Marketplace faced many more struggles in Illinois, there were some indications of future hope in improving competitive choices for our state. First, Land of Lincoln did offer and enroll small employer options. This added a new type of plan for employers to consider – and because it was offered on the SHOP, employers that qualified and enrolled in their SHOP plans could take advantage of the Small Business Tax Credit.

Second, we began to see the creation and evolution of private marketplaces and partially self-funded programs being marketed to small employers. In the past, third party administrators had reserved these innovative solutions for larger clients. The need for financial solutions and minimum essential coverage has spurred creative thinking and new progressive options for forward-thinking small employers to test out. Although these solutions are in their early stages of development, they do reflect a market expansion - not contraction.

Finally, and perhaps most importantly, the existing small business market remained intact. All of the same original carriers that offered plans historically continued to do so in 2014. We didn’t see one single insurance company leave the state of Illinois - instead many of them continued to market aggressively to small businesses and create new plan offerings that would be both compliant with ACA rules and competitive.

As we begin to look forward to the 2015 open enrollment cycle, the question remains of whether this trend will continue or reverse. Early indications point to a growing market. Last month, the Department of Insurance in Illinois released a statement noting that 10 carriers have submitted applications to offer plans in the second year of the Marketplace. This representing a significant growth in choices in the insurance carriers and the numbers of plans they will offer from Year 1. (Get Covered Illinois). Here are the exact numbers:

Illinois Healthcare Marketplace Plan Options – Year 1 and 2
	Year 1 Options	Year 2 Submitted Options
Individual Plans	120	306
Small Group Plans	45	198

The Illinois Department of Insurance is not expected to announce which plans it has approved until early August. However, given the significant increase in possible options, we can expect that both the individual market and small group market will see growth for 2015. Although this is positive movement, my hope is that the department will focus its expansion of plan approvals on the small group marketplace, which was significantly under-represented in choices in 2014.

In any case, the numbers show promising evidence of expanded insurance plan competition under Obamacare – something that small employers and the self-employed desperately needed prior to its enactment. We can and should consider this component of the legislation a true economic win for Illinois business.

Michele Thornton, MBA
Insurance and Benefits Consultant