GAO: Competition, Regulations Drive Smaller Providers From Obamacare Exchanges

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A combination of government regulations and competitive pressures are causing many insurance providers to abandon the Obamacare exchanges for individuals and small businesses, according to a report released Monday by the Government Accountability Office.

In 2012, a small number of issuers of health coverage in the Obamacare exchanges accounted for a large majority of enrollments. There were an average of 42 issuers on the individual exchanges, for instance, but “only 4 had at least a 5 percent share of the market and they accounted for a combined 87 percent of that market.” (RELATED: Minnesota’s Biggest and Cheapest Obamacare Insurer Drops Out Over Overwhelming Costs)

For the most part, “issuers with less than 5 percent of their 2012 market did not participate in the 2014 exchanges,” the report says, while most issuers with a share greater than 5 percent elected to continue participating in 2014.

To an extent, this likely reflects competition among providers driving the least successful companies from the market, but the GAO also identified a number of state and federal regulations that may have contributed to the decisions of some smaller issuers to leave the exchanges. (RELATED: Doctors Begin to Refuse Obamacare Patients)

According to the report, “about one-third of states chose to operate their exchanges, and these states had the ability to impose limitations on exchange participation and plan offerings.”

Seven states, for instance, required “issuers participating in exchanges to offer a minimum number of health plans,” which could place a burden on smaller companies. There is also a federal requirement that an issuer must offer “a minimum of one silver and one gold plan in any area in which it participates in an exchange.”

Moreover, in three states, “certain issuers that offered plans outside of the exchanges were also required to offer plans through the exchange.” While this requirement is intended to increase participation, it can also serve to drive issuers who struggle to compete on the exchanges (for whatever reason) out of the state’s insurance market altogether. (RELATED: Obamacare’s Death Spiral is Underway, Says Study)

There were also 99 new issuers (out of 291, total) on the individual exchanges in 2014 that had not participated in 2012, though some had previously participated in the small-business exchanges. Of these, “23 were newly established through the federally funded CO-OP program,” under which “qualified not-for-profit issuers could apply for federal funding to help cover startup costs.”

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