In the beginning of 2016, UnitedHealth Group, the nation’s largest private health insurer, raised concern about the amount of small co-op health plans they expected to closed. By the turn of 2017, United announced its departure from various exchange markets across the country in response to losses caused by the further enactment of the Affordable Care Act (ACA). A timeline, provided by eHealth, of the law and its sequential mandates gives us a better understanding of why.
That the requirement of all Americans to buy health insurance, set forth in the beginning of 2014 and specified in the timeline, forced insurers to expand geographically to reach previously uninsured citizens is a well understood statement. United, among other insurers opened business, rather reluctantly, in states such as Arkansas, Georgia, and Michigan. Per the Kaiser Family Foundation:
“When the new health insurance exchanges launched in 2014, United was noticeably absent from most state marketplaces. Taking a relatively cautious approach early on, the company offered plans in just 4 states in 2014, but quickly expanded to 23 states in 2015 and again expanded to a total of 34 states in 2016.”
However, when United realized it could not match unprecedentedly high demand for low-cost silver level insurance to enrollee’s – due to government subsidies to previously uninsured and unable to pay Americans – they closed shop in Arkansas, Georgia, Michigan, and various counties across the U.S. This phenomena led to an alarming statistical shift regarding the nature of the health insurance market environment. The non-partisan Kaiser Family Foundation has since revealed the impact of UnitedHealth Group’s decision to exit these markets: that before United’s exit, 64 percent of U.S. counties had three or more insurers while 7 percent had only one, versus after, 48% had three or more insurers while 24 percent have only one. This graph represents the market power which United possessed in the health insurance industry.
On a consumer level, 85 percent of individuals had access to three or more insurers of healthcare while only 2 percent had access to only one before their departure. After, those numbers were 70 percent and 11 percent respectively. These statistics have surfaced the hostility toward UnitedHealth’s decision, as more firms will be operating in monopolistic and duopolistic environments, which fundamentally tend to profit more at the expense of the consumer.
A study done by Cynthia Cox and Ashley Semanskee, provided by Business Insider, to further illustrate the level of competition, showed that if United removed itself from all exchanges, a majority of counties in America would be covered by only one to two insurers. In addition, despite this, they claim the impact on future enrollee’s premiums would not be substantial:
“If United exits everywhere (again, with the exception of Harken Health in Georgia), the number of Marketplace enrollees with access to only one or two exchange insurers would increase (from 1.9 million to 3.8 million or from 15% to 30% of all enrollees), and the number of enrollees with only one insurer would also increase (from 303 thousand to 1.4 million or from 2% to 11% of all enrollees). Still, the vast majority of Marketplace enrollees (8.9 million or 70% of enrollees nationally) would continue to have a choice of three or more insurers, even in the absence of United.”
Albeit United’s decision to not participate in the market has had little effect on insurance premiums in the short run, it is difficult to predict the long run effects on consumers and the entire healthcare industry. However, within approximately a years time, we will be able to better gauge how insurers react to their competitors prices. Let’s just hope everyone plays Cournot!