Association for Public Policy Analysis & Management

Objective:  This study investigates insurer entry into local markets for Exchange-based individual coverage during the second year of operation - 2015.

Data: We utilize the Qualified Health Plan (QHP) Landscape File for 2015. This data set includes detailed information on insurer participation, products, and premiums in counties located in states served by the Federally-Facilitated Marketplace (FFM).  We augment these data with demographic, provider competition, and insurers’ administrative cost measures from the: 1) Area Health Resource File; 2) the SK&A database; and 3) the National Association of Insurance Commissioners’ annual filings.

Study Design: Our conceptual framework is based on an entry model proposed by Bresnahan and Reiss (1991). We estimate an ordered probit model in which the number of insurers offering Exchange-based coverage in the county is a function of population size, market demographics, and factors that shift per capita demand and costs (e.g., provider competition).  Using the ordered probit model results, we predict a set of entry thresholds and their ratios to obtain a scale free measure of competition. We examine cost heterogeneity by comparing the ratio of entrants’ general and administrative costs per enrollee to those of potential entrants across market structures, which are defined by the number of Exchange entrants.

Principal Findings: Our results suggest that market size is positively related to the number of entrants, whereas specialty provider concentration is inversely related. While the distribution of entry thresholds may be driven by oligopolistic behavior, they may also be driven by heterogeneity in potential entrants’ cost structures, which we explore empirically using information from the National Association of Insurance Commissioners. Our analyses do suggest that the “efficiency” of entrants is somewhat better relative to insurers not entering the market; however, the magnitude of these differences is modest.

Conclusions and Policy Implications: Results from our analyses can inform policy discussions related to strategies for encouraging an adequate supply of insurers in local markets to ensure that the policy objectives of consumer choice of affordable insurance are met.