Health Insurance

Are market leaders raising health insurance premiums?

That is the headline from an Avalere report. The top 5 Exchange plans in the state of Washington increased premiums between 6 and 12%. The Exchange plans with market share ranks of 6 or 7, on the other hand, had increases between 0-2% and the 8th place plans even cut rates by almost 7%. Is this a case of the big guys gouging patients?

Actually, the answer is no. Although market leaders did increase rates as a percentage, the premium rates for the top 5 exchange plans in Washington State are actually below plans 6-8. For instance, Blue Cross (the market leader) raised rates by 8.1%, but their 2015 rates ($273.81/month) are still the lowest of all Washington plans. On the other hand Kaiser raised rates by only about 1%, but its 2015 rates ($335.21/month ) are among the highest in Washington.

What can explain this phenomenon. First, this could be a case of regression to the mean where the lowest price plans raise their rates. Second, it could be the case that market leaders intentionally underpriced the plans to gain market share with the intention of later raising rates. Changing health insurance has transcaction cost. For instance, you need to find a new doctor. Additionally, if you pick a new plan, you need to research which plan is best for you and your family which can be time intesive. Thus, underpricing health insurance in the first year of the Exchange may have been an optimal strategy. Third, this could be the case of increase competition. Health plans with lower market share may want to gain market share. One way to do this is to lower their prices (or in this case, increase prices more slowly than the big guys).

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