Emerging exchange dynamics: Temporary turbulence or sustainable market disruption?

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This brief comprises an initial set of analyses regarding the structure, competitive dynamics, and pricing on the exchanges, and their implications.

Health insurance carriers in every state have now filed their proposed product offerings for the public exchanges created by the Affordable Care Act (ACA). The full characterization of exchange offerings – including rates, products, networks, and formulary details – will not become transparent until October 1, 2013, when the exchanges go live. While the majority of rates are not set to be approved by the federal government until later in September, some states have begun to reveal rates, and almost all have released names of the carriers filing in their markets.

The McKinsey Center for U.S. Health System Reform has analyzed this emerging data for the individual-exchange market across 47 states and the District of Columbia. Individual-exchange products are the only plans through which income-eligible consumers can receive the federal premium and cost-sharing subsidies. The preliminary data in this analysis will undoubtedly continue to evolve before exchanges open, given federal approval of carriers is pending in all federally-facilitated and partnership states, and given recent examples such as Washington reversing its rejection of two carriers and several experienced carriers withdrawing from exchange markets. Following the release of all final rate filings, the Reform Center will be updating this analysis with a comprehensive report of the exchange landscape.

The analysis reveals four themes regarding the expected 2014 competitive landscape on the exchanges:

  • Changes in the degree of choice offered to consumers on the exchanges will differ across states; compared to today, half of states – over two-thirds of non-elderly uninsured – are likely to have roughly the same or more carrier choices, while the remaining half of states – close to one-third of non-elderly uninsured – can be expected to see a material decline in competitors based on carrier filings.
  • The composition of individual-market participants is changing, with close to one-third of incumbents foregoing exchange participation and many new entrants filing who could meaningfully alter the competitive dynamics.
  • Market disruption is probable given premium variations, partially a function of lower new-entrant premium rates, though the extent and the sustainability of this potential disruption remain unclear.
  • A trend in managed care plan design – gatekeepers to manage referrals – is emerging, especially among new entrants, likely as a way to achieve competitive price points.