California and Vermont are the only states set to require medical insurers to bid for the chance to sell coverage through new exchanges being set up this year under the Obama administration’s health-care overhaul.
The 2010 Affordable Care Act gives states the power to impose a bidding system for insurers to join the exchanges as an option to help drive down costs. A survey of the 16 states that will run their own systems starting in October found that 12 won’t require such a system and at least one other is undecided.
“It’s a missed opportunity if the exchanges don’t use their bargaining power to force insurance companies to compete on price,” said Jay Angoff, a partner at Mehri & Skalet in Washington who once served as Missouri’s insurance commissioner and later worked for President Barack Obama’s administration.
With about 7 million people projected to seek insurance through exchanges next year, and 27 million by 2018, states could have leveraged that customer base to ensure lower prices. Market competition will hold down premiums, said America’s Health Insurance Plans, the lobbying group for insurers.
“We’ve always believed that exchanges need to maximize choice and competition,” Robert Zirkelbach, a spokesman for the Washington-based organization, said in a telephone interview. “Efforts to exclude plans from participating in exchanges would have the opposite effect.”
Two of the 16 states -- Minnesota and Massachusetts -- are at least considering attaching some strings.
Massachusetts is holding a limited auction, restricted to insurers that want to sell to low-income people who will receive extra subsidies from the state. Five plans will win the right to sell to those customers, said Jean Yang, the executive director of the Massachusetts Health Connector. People who earn too much for state subsidies will have a wider choice of plans, she said.
“Competitive bidding obviously is an attractive concept because it pushes price points down and everyone benefits,” she said in a phone interview.
Minnesota’s legislature is now debating whether to authorize an exchange and hasn’t decided to require bids, said John Pollard, a spokesman for the state budget office.
“We’re exactly smack dab in the middle of that debate,” he said.
Vermont is making insurers bid, yet with only two carriers in the state, the government is unlikely to exclude either of them, said Lindsey Tucker, the exchange’s deputy commissioner.
That’s driven decisions in many states, where officials say that without knowing how many people will enroll in the exchanges, they hesitate to drive hard bargains with insurers.
“It’s kind of like saying, ’I’m going to negotiate with the car dealer but I don’t know what model I want, what features I want, I don’t know if I want automatic or stick shift -- but I’d like to negotiate price with you,’” said Kevin Counihan, the executive director of the Connecticut exchange. “It’s hard to negotiate with no market share.”
In the absence of leverage, broader choice can be effective, Counihan said in a telephone interview.
“This is music to the ears of the insurers,” said Joel Ario, a former Obama administration health official who is now managing director at Manatt Health Solutions, a consulting firm in Washington that is advising insurers on exchange rules.
Insurers say the best way for states to secure affordable premiums as well as a wide choice of plans is to allow any carrier into the exchange that qualifies under federal rules.
“Our position has been: let everyone who’s qualified play,” said Kim Holland, a former Oklahoma insurance commissioner who manages state affairs for the Blue Cross Blue Shield Association, a federation of 38 local plans, including some owned by WellPoint Inc.
“Already, there are carriers saying we’re going to limit the number of exchanges we participate in,” Holland said in a phone interview. “To further limit that doesn’t make a lot of sense.”
In California, which expects as many as 2.4 million people to be shopping in its exchange by the end of January, 33 insurers have said they will bid to sell plans, said Dana Howard, a spokesman for the exchange, called Covered California.
“They will not all be in,” said Peter Lee, the executive director of Covered California, in a Feb. 13 conference call with reporters. “We will select the plans that will be best for California’s consumers.”
The federal government is building and running exchanges in 26 states and doing most of the work in seven others. The Obama administration has told insurers they won’t have to bid to get into the federal exchanges for at least three years.
“If the rates for a proposed plan are determined to be unreasonable or inappropriate,” the marketplaces may exclude the plan, Alicia Hartinger, a spokeswoman for the U.S. health agency’s Center for Consumer Information and Insurance Oversight, which is building the federal exchanges, said in an e-mail.
It’s not yet known what exchange plans will cost. Insurers will begin filing plan designs and their rates for 2014 to states in the spring. The industry has warned of “rate shock” as people shop in the exchanges for plans that must pay new fees and taxes; are limited in how much they can charge older people compared with younger ones; and must offer generous benefits.
Kevin Galvin, who owns a maintenance company in Connecticut, said he worries that the decision to let all insurers into his state’s exchange will mean prohibitively high premiums for him and his four employees. Galvin and other consumer advocates in the state had lobbied to hold a bid. The board supervising the exchange, which has members who used to work for insurers, rejected the idea at a meeting in November.
Gavin said he’s never before been able to afford coverage for his workers.
“I don’t know a small-business man or woman who does not want their people to be insured and healthy,” Galvin said in a telephone interview. “The concern around the exchange, or around what is going to be in the exchange, is affordability.”