Study: Competition May Lead to Lower Rates

February 9, 2016

Competition among insurance companies may help lower rates for consumers buying policies under the Affordable Care Act, according to a new study by IGS Graduate Fellow Sam Trachtman and other researchers.

Trachtman and co-authors Paul D. Jacobs and Jessica S. Banthin published their study in the journal Health Affairs, finding that the presence of one additional insurer in a county reduced premiums for “silver plans” by between 1.2 percent (for the average cost plan) and 3.5 percent (for the benchmark plan).

“These findings suggest that increased insurer participation in the federally run Marketplaces reduces federal payments for premium subsidies,” says the article’s Abstract.

Trachtman started work on his Ph.D. in political science at Berkeley in 2015, affiliating with IGS as a graduate fellow. He is broadly interested in studying the politics of health and environmental policy, as well as the role of money in the political system. 

Trachtman received his B.A. in 2012 from Pomona College, where he majored in Economics, and he later worked in strategic planning for Southern California Edison and health economics research for the Congressional Budget Office

The new study in Health Affairs adds to the existing academic literature on competition and premium dynamics in the exchanges – called Marketplaces – created by the ACA. Policy makers have increasingly relied upon competition among insurers to help restrain spending on public health insurance programs, such as the Medicare Advantage and Medicare Part D prescription drug benefit programs. Similarly, an important reason for the creation of the health insurance exchanges under the ACA was to use competition among insurers to help dampen private health insurance spending and reduce the federal costs of subsidizing enrollees. 

The effect of competition on federal spending can be measured by changes in the premium for the second-lowest-cost silver plan in a rating area, which is the benchmark for premium subsidies, the researchers say. The results suggest that competition among insurers can have an economically meaningful effect.