NCPA - National Center for Policy Analysis

Will Competition Arise for Multi-State Health Plans?

July 13, 2015

The Affordable Care Act (ACA) established the Multi-State Plan (MSP) program which requires that two or more national insurance carriers offer coverage on health insurance exchanges in all 50 states and Washington, D.C. However, recent regulations are unlikely to make the MSP program a robust platform for health insurance competition, writes Neil Meredith and Robert Moffit of the Cato Institute.  The Office of Personnel Management (OPM) has broad administrative authority to negotiate the terms and conditions for the MSPs:

  • The plan must offer coverage in every health exchange by the fourth year of coverage.
  • This requirement may damage competition because smaller insurers are not as likely to be able to form the necessary infrastructure in that short time span.
  • This may deliver more market power to larger insurers.

The MSP program requires at least two MSP options on all 51 exchanges with at least one non-profit option. As a result, it is difficult for for-profit insurers to participate and provide competition.

The OPM should consider measures to promote competition by:

  • Reevaluating the rule that MSP providers make coverage available on all 51 exchanges;
  • Placing representation of ordinary consumers rather than special interests on the MSP Program Advisory board;
  • Reducing user fees temporarily for new issuers;
  • Conducting a Regulatory Impact Assessment (RIA) if the proposed regulatory changes have an economic effect of $100 million or more.

Since the pool of MSP competitors is reduced because of requirements that confine participation to large insurers it could lead to health plan consolidation rather than competition. As such, the MSP program could lay the ground work for the public option championed by the Obama administration.

Source: Neil R. Meredith and Robert E. Moffit, "Will competition arise for multi-state health plans?" Cato Institute, Summer 2015.


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