October 15, 2021
As the ACA Marketplaces face challenges with high premiums and limited insurer competition, there is significant interest in how policymakers can stabilize markets and control costs. We describe a unique set of active purchasing policies used by Massachusetts’ health insurance exchange to shape the rules of competition and reward lower-price insurers with additional customers. In contrast to the typical focus on recruiting new insurers to an exchange, Massachusetts focused on shaping insurer incentives through carrots and sticks for setting prices below certain thresholds or below other insurers’ prices. We provide evidence that insurer pricing was significantly influenced by active purchasing policies. Between 2010 and 2013, over 80% of insurer prices were set exactly at or within 1% of pricing thresholds created by active purchasing policies. One key “limited choice” policy—which restricted the choice set of fully-subsidized consumers to the two cheapest plans—was associated with a 16-20% reduction in average insurance prices relative to comparative insurance markets in 2012-2014. The state’s slower price growth continued during the ACA’s first years, with the Connector having among the lowest benchmark premiums of any state starting in 2017.
Shepard, Mark, and Ethan Forsgren. "Do Insurers Respond to Active Purchasing? Evidence from the Massachusetts Health Insurance Exchange." October 15, 2021.