Making Choice and Competition Work in Individual Insurance in Health Reform Proposals

Republicans and Democrats agree on prioritizing choice in health insurance, but disagree on what it entails and how to achieve it. Choice and competition can create negative consequences, including adverse selection and consumer confusion.

Examine the experiences of the Affordable Care Act’s marketplaces and recommend ways policymakers can harness choice and competition to improve coverage, satisfaction, and affordability.

Review of existing evidence.

There are multiple areas where insurance design could promote efficient competition and consumer choice. Experiences with the ACA have shown that health insurance marketplaces should include an urban area with adjacent rural and suburban communities to promote competition among insurers. Other recommendations include allowing smaller insurance carriers to base medical loss ratio rates on past years’ data; allowing insurers to bid against each other for contracts to serve a population; providing resources to allow consumers to make informed choices; and including features like essential health benefits to counteract adverse selection.

Markets can deliver efficient premiums, access to care, and consumer satisfaction but only when they are carefully designed and actively managed through regulation.