If most of an insurers’ customers are subsidized, pressure on prices will come from the government rather than consumers. Folks whose premiums and cost-sharing are capped as a percentage of their income are going to shop on benefits rather than price. Regulators, of course, will want lower prices, and will bring the full force of their powers down on insurers to get them. But this will lead to the sort of tortured dynamic that appears so often in the public choice literature: Regulators will care a lot about price and specific metrics, not a lot about the actual preferences of consumers. So mandatory birth control may stay while ability to see a doctor in a timely manner may suffer. Insurers have already used up one of the easiest tricks, cutting pricey teaching hospitals out of their networks. It will be interesting for health wonks, but potentially painful for consumers, to see what goes next.
Larger insurers are more likely to stay in the market. We’ve already seen a few insurers fail or exit, and they tend to be smaller ones — start-up co-ops, or this elderly Wisconsin firm. This makes pretty good sense. For a big health care firm, exchange policies are a tiny portion of revenue, so the company can afford to sell these policies at or below cost in order to stay on the good side of HHS. This does create a potential vulnerability, however: To the extent that Obamacare really does break the link between employment and insurance, as many advocates have dreamed, and employers start shifting their workers into exchange policies, HHS will be asking insurers to cannibalize their profitable sales for unprofitable ones.
Writing exchange policies will be a riskier business. Thanks to the law of large numbers, bigger insurance pools are more stable and profitable insurance pools. If you insure only 1,000 people, an unluckily high number of cancer patients or neo-nates can break the bank. If you insure millions, you have a little more cushion. A smaller market means more risk — and remember that the millions of people who have bought exchange policies are not in a single market, but are scattered across a lot of regional markets? You, the consumer.