Commercial ACA plans would likely lower premiums to compete with public option: analysis

Affordable Care Act highlighted
A new analysis from the Urban Institute found that a public option could lead to lower premiums on Affordable Care Act plans offered by commercial insurers. (Getty/Ellenmck)

Many commercial insurers are likely to lower premiums on the Affordable Care Act’s exchanges if they face competition from a public option, according to a new analysis.

The analysis from the left-leaning think tank Urban Institute released on Monday comes as the public option, where the government sells insurance plans on the exchanges, is gaining popularity among Democrats and in some states.

The analysis said that the lower rates paid by a public option could give insurers more bargaining power against hospitals and physician groups. The public option would also provide an opening for commercial insurers to gain more market share. 

“Providers could therefore accept lower payment rates, given the threat that a public option would dominate, and insurers could then offer lower premiums,” according to the analysis, which was funded by the Robert Wood Johnson Foundation.

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The public option would likely pay rates to providers that resemble Medicare reimbursement, which can be severely below what a commercial plan pays.

Urban examines the commercial insurers’ response to competing in the ACA marketplace with managed care organizations, which can now offer ACA exchange plans in addition to Medicaid or Medicare coverage.

“For their marketplace business, most of these organizations seem to have built upon their existing Medicaid networks, allowing them to offer lower-cost provider networks, albeit at rates somewhat higher than those paid under Medicaid,” the analysis said.

This year, rating regions that had a managed care insurer were associated with benchmark premiums for a 40-year-old man about $30 a month lower than comparable regions without a participating managed care insurer, Urban found.

To be sure, a public option plan would differ from a managed care plan in terms of the premiums offered and the payments to providers. However, the analysis charges managed care ACA plans did spark greater competition and could lead to lower premiums for plans from commercial insurers.

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Researchers also found that ratings regions with at least one participating managed care insurer were “substantially more likely to have four or more competing insurers than rating regions without [managed care] insurers,” the analysis said. “Taken together, our findings provide early evidence that lower-cost insurers, like public options, may catalyze competitive responses from other insurers, lowering overall average premiums in a market.”

The analysis comes as the ACA insurance exchanges are continuing to show signs of stabilizing. The Trump administration announced Tuesday that benchmark plan premiums for the exchanges are expected to decline by 4% in 2020 compared to this year. The Centers for Medicare & Medicaid Services also announced that more insurers are flocking to the exchanges, with 20 more insurers expected to offer plans in 2020 on compared to 2019.

Several 2020 Democratic presidential hopefuls have endorsed a public option and so have several states. Colorado earlier this month introduced a proposal to create a new statewide insurance option that severely cuts reimbursement to providers. 

Colorado will join Washington state as the only states to provide a public option, with Washington's option expected to start in 2021.