Experts: To improve ACA plan competition, stop capping insurers' margins

One way to increase competition in the Affordable Care Act marketplaces is to get rid of caps on insurance carriers' operating margins, two industry experts argue in a blog post for the consulting firm BDO.

The ACA rules--that insurers can only spend 20 percent of their premiums on administrative costs for individual or small-employer plans, and 15 percent for policies sold to large employers--are meant to make sure most revenue from premiums is spent on patient care, write David Friend, M.D., and Scott Gottlieb, M.D.

But they're also constraining new insurance carriers' ability to get off the ground, they argue. Many of the new carriers on the ACA exchanges are provider-sponsored plans and consumer operated and oriented plans, they point out, and many CO-OPs have failed.

Because start-up costs with a new insurance plan are high, new carriers need to spend more of their premium revenue into overhead to pay for those costs. So caps on profit margins constrain new insurers and favor larger insurers able to spread administrative costs over more health plans and beneficiaries, Friend and Gottlieb add.

What's more, "credibility adjustments" in the ACA that are intended to exempt especially small plans from the caps "are so narrow that few plausible start-up health plans will quality," the post says.

The issue of competition on the exchanges is expecially pressing given that four of the country's largest payers--Aetna, Humana, Anthem and Cigna--are pursing mergers that would form just two distinct companies.

To learn more:
- here's the blog post
 
Related Articles:
Lawmakers slam oversight of failing CO-OPs
Why as CO-OPs failed, government failed to act
BCBS CEO: High-risk exchange customers create unsustainable losses
UnitedHealth has exited 27 ACA marketplaces so far
What would happen to a state exchange with no insurers?

Suggested Articles

Employers looking to continue investing in their wellness programs are eyeing services targeting mental health and women’s health, a new survey shows.

Payers have made strides digitizing and automating many core processes, yet prior authorization remains a largely manual, cumbersome process.

The country's biggest health insurers raked in more than $11 billion in profit in the second quarter.