Behaviors of the Issuers in the Individual Health Insurance Marketplace under the Affordable Care Act

The Affordable Care Act (ACA) organizes private insurers offering individual health plans into insurance exchanges where they are required to offer benefits within standardized categories. The ACA mandated premiums based on modified community rating rather than medical underwriting, where patients with pre-existing conditions would be charged a higher price or denied coverage. However, from 2014 to 2018, premiums increased while many insurers exited exchanges. This study hypothesizes that insurers were using local disease prevalence or incidence, along with other potential factors to adjust their behavior of participation and premiums determination. This research conducted systematic scoping literature review, attempted to understand the severity and scale of medical underwriting before and after the implementation of the Affordable Care Act. Then this research conducted two groups of empirical studies on insurer participation and dynamics of the premiums. The literature review found evidence for the existence of medical underwriting cycle before the implementation of the ACA out of concerns for avoiding insuring risk, reducing cost and remedy for adverse selection. Empirical studies in this research found that insurers might not be using local disease prevalence or incidence for participation and premium determination. However, insurer was more likely to participate and set premiums lower, if they have seen more insurers and plans in a previous year, and the dominant insurer’s premiums were not very high. Metro areas tend to have more insurers participating and offering lower premiums, possibly due to market competition. Further study should investigate approaches for reducing adverse selection, increasing access to insurance and keep market competition at proper equilibrium