Competition will suffer if United drops out of Obamacare nationwide

An analysis by the Kaiser Family Foundation says competition will suffer if United Healthcare decides to pull out of Obamacare exchanges across the country.

Earlier this month United Healthcare announced it was pulling out of Obamacare exchanges in Georgia, Arkansas and Michigan. That decision followed warnings last year that United might drop the exchange business after facing significant losses and low enrollment.

Kaiser’s analysis, published Monday, is an attempt to determine how the Obamacare landscape would change if United decides to pull out of all of its Obamacare business nationwide. The most significant change would be reduced competition:

If United were to withdraw from all states, 532 counties would go from having three insurers to two, while another 536 counties would go from having two insurers to just one.  The net effect of a United exit would be that 532 more counties in the U.S. would have just one or two insurers on the exchange.  Combining these counties with the 1,121 counties that already had one or two insurers would mean that just over half (53%) of U.S. counties would have one or two exchanges insurers.

This graph shows the difference. Before a United pull out nearly 2/3 of U.S. counties have 3 insurers to choose from. After a United pull out that number drops to less than half.

Kaiser united health

It’s important to point out that counties are not representative of population. In fact, it would be rural, less populated counties that would most likely wind up with just one (or two) insurers to choose from. That means that about 70% of the people choosing plans would still have 3 insurers to choose from even after a Kaiser pull out (compared to 85% before).

Kasier’s analysis also says the cost of Obamacare plans would only have been slightly impacted if Kaiser had pulled out of selling plans nationwide in 2016:

Overall, the national average benchmark premium would be 1% higher had United not participated in 2016, which is less than $4 per month for an unsubsidized 40-year-old on average. (Note that this does not take into account different pricing behavior by insurers due to fewer competitors.)

Note the parenthetical caveat. Kaiser returns to this in its conclusion:

The longer-term effects of a United withdrawal are more difficult to quantify.  Other participating plans may independently plan to raise or lower premiums and enter or exit markets.  In areas with limited insurer participation, the remaining plans after a United exit may have more market power relative to providers, but in the absence of insurer competition, those savings may not be passed along to consumers.  The ACA’s rate review and medical loss ratio provisions may counter some of this effect by requiring insurers to undergo state or federal review of large rate increases and requiring that plans issue rebates if they set premiums too high relative to the cost of providing care.

In other words, the immediate impact on pricing might be relatively small, but lowered competition will likely have an impact on pricing down the line. Kaiser is suggesting state and federal regulators could block those additional increases but is that really wise?

United Health is getting out of the Obamacare business because it has lost (or expects to lose) nearly a billion dollars covering sicker-than-expected enrollees. Preventing other insurers from increasing premiums may look good politically in the short run but could backfire if another major insurer looks at the balance sheet and decides to follow United’s lead out of the market. Remember, Aetna and Anthem are also losing money in the exchanges.

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