NCPA - National Center for Policy Analysis

Will Competition Arise for Multi-State Health Plans?

July 23, 2015

As part of the 2010 Patient Protection and Affordable Care Act, Congress and President Obama passed into law the Multi-State Plan (MSP) program.  Beginning in 2014, the program requires the U.S. Office of Personnel Management (OPM) -- the agency that administers civil service laws, rules, regulations, and the Federal Employees Health Benefits Program (FEHBP) -- to contract with two or more national insurance carriers to offer coverage on health insurance exchanges.

Evidence suggests that metropolitan statistical area (MSA) health insurance markets throughout the country are concentrated. In fact, in many markets, evidence shows that a substantial share of the market is dominated by a few health insurance issuers.

While the ACA was put together with the idea of improving competition, Neil Meredith and Robert Moffit write that the MSP program may make competition harder:

  • The requirement that a given MSP must be available on all 51 exchanges in the United States within four years may damage competition. The requirement basically does not permit for-profit issuers to take part in the MSP program until a nonprofit makes an MSP option available.
  • The four-year requirement serves as a barrier to entry that may increase concentration in the health insurance industry and deliver more market power to larger insurers.

The authors also offer several reform options:

  • Reducing user fees temporarily for new issuers may help attract additional competition to the Multi-State Program.
  • Officials should deal flexibly with potential MSP issuers to increase competition — and, of course, refrain from favoritism.

Source: Neil R. Meredith and Robert E. Moffit, "Will Competition Arise for Multi-State Health Plans," Cato Institute, Summer 2015.


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