Opinion: Small Rise in NJ Insurance Premiums, Even as Competition Declines

Joel C. Cantor, Katherine Hempstead | September 13, 2016 | Opinion
The loss of two carriers hasn’t pushed up the cost of individual coverage in the Garden State, though that might be the expected outcome

Cantor and Hempstead
The news last month that Oscar Insurance Corp. is planning to exit the New Jersey individual market has raised questions about the market’s stability. Yesterday’s announcement that Health Republic Insurance of New Jersey (HRI) had entered “rehabilitation” as per the Department of Banking of Insurance, reduced the number of market competitors to two – Amerihealth and Horizon BCBS. This reduction in competition is cause for concern. Yet it is still the case that in terms of premium increases, the New Jersey individual market is a welcome contrast to that of many other states.

New Jersey’s premiums are not low by national standards. Yet while rate increases requested by insurers are averaging roughly 23 percent nationally, requests in New Jersey came in at a little more than 8 percent on average, among the very lowest in the nation. Neighboring states such as New York (17.3 percent), Pennsylvania (23.6 percent) and Delaware (30.5 percent) had much higher requested increases.

The withdrawal of Oscar actually lowered the average requested increase, and HRI’s exit may reduce it further. At this point, New Jersey’s requested increases for 2017 are consistent with the state trend of fairly stable pricing since the federally regulated market launched in 2014. Figure 1 and Figure 2 show this pattern of moderate price change and growing convergence in mean premiums for silver plans between 2014 and 2016.

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There are a few reasons New Jersey’s premium changes may be more moderate than those in other states. One factor is relative maturity: New Jersey is one of the few states that had several important market reforms in place before the Affordable Care Act. Even though there were no mandates or subsidies, and less comprehensive coverage than required under the ACA, carriers in the state had some experience selling individual policies to people with preexisting health conditions. Also, state carriers did not choose to extend non-ACA-compliant plans, creating a more favorable environment for carriers, particularly for those wishing to enter the market.

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New Jersey is also the only “federally facilitated marketplace” state that has standardized plan designs, which may have helped insurers create better products. Marketplace plans in New Jersey almost exclusively offer closed-network EPOs or HMOs, perhaps preventing some of the losses and dramatic product changes that have occurred elsewhere. Finally, the fact that New Jersey expanded Medicaid at the earliest opportunity may have also helped the market by keeping some of the most expensive enrollees out of the ACA risk pool.

Perhaps because of this regulatory environment, New Jersey’s individual market attracted new insurers to the market and fostered fairly robust competition. A co-op plan, Health Republic (HRI), joined in 2014, and Oscar and United entered in 2015, joining Horizon Blue Cross/Blue Shield and Amerihealth, a for-profit subsidiary of Independence Blue Cross. Every plan sold on the marketplace in New Jersey is also available directly from the carriers, and in addition to Aetna and CIGNA, there are a small number of off-marketplace plans sold by the carriers who participate in the marketplace.

In the first quarter of 2016, the non-group market served nearly 360,000 residents, a nearly two-and-half fold increase from 2013, before the ACA when into effect. Today, roughly 40 percent of New Jersey individual coverage participants are unsubsidized. The market share for Horizon, the state Blue plan, is currently about 60 percent, with Amerihealth at about 20 percent. Either Horizon or Amerihealth has offered the benchmark plan since 2014.

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While the market has seen new entrants, they have clearly struggled. Neither Oscar, United,
nor HRI will return in 2017, although United will sell off-marketplace coverage in order to participate in the small group market. Oscar and HRI have lost money steadily (complex federal premium stabilization formulas hit HRI particularly hard), largely subsidizing their losses with capital to avoid large rate increases – but these strategies could not be extended infinitely, as their recent exits clearly indicate. This suggests that the market as a whole may be somewhat underpriced, and there could be more substantial increases in the future.

Assuming requested rates go into effect and carrier market shares remain unchanged, average silver premiums by carrier in 2017 may look somewhat like what is shown in Figure 3, with Amerihealth priced a little higher than Horizon. Oscar would have remained the lowest-price carrier if it had stayed into 2017, while HRI was priced very similarly to Horizon.

It appears that both remaining carriers will have a silver plan with a premium less than $300, and the benchmark plan may once again be offered by Amerihealth. Amerihealth also seems to offer the most expensive silver plan, with an HMO product that will probably have a premium above $400. It remains to be seen whether these price increases generate much switching, and what plans will be chosen by former United, Oscar, and HRI customers. It is also possible that more consumers may entering the individual market either from group plans or from the ranks of the uninsured, as mandate penalties increase.

Although premium increases are below average, New Jersey has not been spared the problems with carrier participation that have been experienced elsewhere. All three new entrants have now exited the marketplace. It is hoped that as the market stabilizes, conditions will become more favorable for new entrants, since excessive carrier consolidation is unlikely to be in the best interest of consumers.