Health law exchanges might not spur insurer competition, study finds

States and the federal government will have to work hard to make sure that new insurance exchanges in President Obama's healthcare law actually create more competition, a new study says.

The healthcare law directs each state to establish an exchange — a new marketplace where individuals and small businesses can easily shop for insurance. The federal government can run a "fallback" exchange in states that don't set up their own.


Exchanges are similar to the Federal Employees Health Benefits Program (FEHBP), which allows federal workers to choose from a range of health plans. Plans can only participate if they meet certain minimum standards.

But some areas of the country don't have many competing FEHBP plans, so workers in those areas don't reap the same benefits from competition among insurers, according to a study published in Health Affairs. The same thing could happen with exchanges unless states and the federal government take proactive steps to avoid it, the study says.

Rural areas with low populations tend to have less competition among insurance companies. They have fewer doctors and other healthcare providers, and are often dominated by one large insurer — in the case of the FEHBP, usually Blue Cross/Blue Shield.

The Health Affairs study says people in those areas generally pay higher out-of-pocket costs than people in more populated areas with greater competition.

"If experience with the federal benefits program is an indication of how much competition can be expected in the exchanges, then people obtaining coverage from exchanges will not benefit much from competition unless the exchanges are at least modestly assertive in setting conditions of participation for qualifying health plans," the authors wrote.

They suggested that exchanges could use a tool called "risk adjustment" to help insurance plans offset the higher costs of moving into a rural market with less competition. Exchanges could also require plans to charge the same out-of-pocket costs statewide, effectively eliminating higher costs in rural areas.