A STUDY OF AFFORDABLE CARE ACT
COMPETITIVENESS IN NORTH CAROLINA
Mark A. Hall, Wake Forest University
with the assistance of Katherine Booth
THE BROOKINGS INSTITUTION
THE ROCKEFELLER INSTITUTE
A FIELD RESEARCH REPORT
FEBRUARY 2017
Health Policy
Section 1 – State Context
Section 2 – New Developments Entering the
Fourth Open Enrollment Period
Section 3 – Selection of Study Locations
Section 4 – Methodology
Section 5 – Findings and Analysis
Section 5.1 – Insurer Participation
Section 5.2 – Network Formation
Section 5.3 – Prices and Enrollment
Section 5.4 – Reasons for Higher Prices
Section 6 – Summary and Conclusions
References
Support for this publication was generously provided by The Irene Diamond Fund. Brookings is
committed to quality, independence, and impact in all of its work. Activities supported by its donors
reect this commitment and the analysis and recommendations are solely determined by the authors.
3
5
5
6
7
7
8
11
13
14
17
Table of Contents
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 3
Section 1 – State Context
Basic facts about North Carolina are presented in the table below and the distribution of the state’s
population is shown in the map that follows.
1,2,3,4,5,6
Table 1: Basic State Facts
North Carolina is a populous state (10 million) with lower-than-average income (42nd nationally) and
a historically high uninsurance rate (6th nationally). Thus, the state had a large number of potential
new applicants eligible for subsidized coverage, and in fact has achieved the fourth-highest exchange
enrollment in the country (approximately 600,000). North Carolina is also notable for being the second-
largest state to have only one carrier statewide—Blue Cross and Blue Shield of North Carolina (Blue
Cross).
North Carolina Snapshot
Type of Exchange
Federally facilitated marketplace
Expansion of Medicaid
No
Number of Rating Areas
16
Number of Insurers
1 statewide, another in only one metro area
Net Change in Number of Insurers (2014-
2017)
-1, but most metro areas have lost two
Premium Increase (2016, silver plans)
22 percent (44th best)
State Population and Rank (July 2015)
9,902,000 (9th)
State Median Household Income and Rank
(2015)
$50,797 (38th)
Salient Health Facts
19.2 percent of adults in North Carolina report
fair or poor health status; in the bottom quarter of
U.S. states.
Salient Health Policy Information
Fairly standard regulatory environment, neither
notably strict nor notably lenient. Per capita
health spending is below U.S. average. Prior to
the Affordable Care Act, North Carolina had the
sixth-highest rate of uninsured in the U.S.
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
4
Despite having lower overall health care costs than national averages and group premiums near the
national average, premiums for Affordable Care Act (ACA) nongroup coverage in North Carolina are
the highest in the continental United States. These premiums vary, however, by as much as 30 percent
across rating areas. Population density also varies a great deal across the state.
Under Republican leadership, North Carolina declined to run its own marketplace exchange. The state’s
insurance commissioner is popularly elected and therefore tends to have a somewhat populist orientation
to consumer issues. The insurance department has been active in implementing the state’s portions of
the ACA’s new market regulations.
The state also has refused so far to expand Medicaid. However, it is seeking a federal waiver to implement
managed care for Medicaid statewide. Previously, the state’s Medicaid was primarily fee-for-service
(except for behavioral health).
Figure 1: Population of North Carolina
Source: Wikimedia Creative Commons, https://commons.wikimedia.org/wiki/File:North_Carolina_population_map.png
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 5
Section 2 – New Developments Entering the
Fourth Open Enrollment Period
The most notable development for the 2017 open enrollment period (OE4) is the decision by two of the
nation’s largest insurers—UnitedHealthcare and Aetna—to exit the marketplace exchange, both in North
Carolina and in other states.
Previously, UnitedHealthcare had offered exchange coverage in three-quarters of the state’s counties,
which included about 90 percent of its population, and Aetna had done so in more populous areas
covering about a quarter of the counties, accounting for roughly half the state’s population.
With these two major departures from the market, Blue Cross and Blue Shield of North Carolina is
the only option throughout most of the state, except in the Raleigh area, where Cigna has entered
the exchange market for the rst time. Blue Cross also considered whether it would withdraw
from at least some counties, but announced recently that it would remain in all counties for
an additional year—reserving, however, its option to reconsider that decision for future years.
An analysis by this same research team a year ago concluded that North Carolina’s individual market
was reasonably competitive overall.
7
Prior to the ACA, Blue Cross had a commanding market share in
the individual market of 86 percent, and only one other insurer, Aetna (formerly called Coventry), had
over 5 percent, making North Carolina’s individual market one of the most highly concentrated in the
country.
8
After the rst three open enrollments, North Carolina’s individual market was noticeably less
concentrated. Based on enrollment on and off the exchange, Blue Cross’s share of the individual market
statewide dropped to 65 percent by early 2016. Aetna had 19 percent, and UnitedHealthcare had 16
percent.
9
Obviously, this picture has changed considerably in less than a year.
Section 3 – Selection of Study Locations
Below is a map of North Carolina’s 16 rating areas. This study addresses market conditions statewide,
but with special focus on the eastern third (regions 12, 14, 15, and 16), the far west (region 1), and the
Charlotte area (regions 4 and 5). The eastern third historically has had little competition among carriers;
the western regions have seen some competition; and the Charlotte area has had signicant competition.
Only Blue Cross has offered coverage statewide during all four ACA open enrollment periods. During
the rst open enrollment (OE1), Aetna offered coverage in the Charlotte area, along with other more
populous areas mostly in the central part of the state. In the second open enrollment (OE2), Aetna
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
6
expanded somewhat to cover 39 of 100 counties that accounted for 64 percent of the state’s population.
Included in this coverage was all of region 1 except for the ve most western counties, but little or none
of the east/southeast (9, 12, 14, 15, and 16).
Figure 2: North Carolina Rating Areas
During the second open enrollment, UnitedHealthcare entered the market, and in the third open enrollment
UnitedHealthcare expanded to cover about three quarters of the state’s counties—all except those in the
northeast, which have the least population.
Section 4 – Methodology
The selection and recruitment methods involved two steps. In addition to interviews, internet searches
were conducted of major North Carolina newspapers and health policy websites for relevant information.
First, contact lists were formed for each category of interview subjects. For insurers, regulators, providers,
and state policy experts, this was done using existing connections and information, drawn from previous
health policy research in North Carolina For navigators and agents, contact lists were compiled from
separate databases based on county and rating region.
People in these separate groups were contacted using a different approach for known contacts and new
ones. For the former group, contacts were made on an individual basis, and positive responses were
received from all ten contacts. For new contacts, a form email was sent that outlined the basic goal of the
study as well as a detailed account of condentiality procedures.
Source: North Carolina Department of Insurance, North Carolina 2014 Rating Areas Accepted by CCIIO on 3/29/13, http://
www.ncdoi.com/HealthCareReform/Documents/HealthCareReform/North_Carolina_Map_of_2014_Rating_Areas.pdf
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 7
Of 28 such emails, 17 responded and agreed to participate. Overall, 27 interviews were conducted—four
with insurers, ve with navigators, six with agents/brokers, two with current or former regulators, seven
with providers (both hospitals and physician groups), and three with state policy experts. Interviews
lasted from 20 to 60 minutes, with most agent/navigator interviews lasting roughly 30 minutes and most
interviews with regulators, insurers, and providers lasting longer.
Interviews were conducted by the author of this report, who took written notes. Interviews were based
on an interview guide, but topics varied somewhat based on each source’s particular background and
experience.
Section 5 – Findings and Analysis
5.1 INSURER PARTICIPATION
Sources gave a variety of explanations why North Carolina, despite the size of its enrollment, has failed
to retain substantial competition on the ACA exchange.
First, no source blamed the state’s regulatory environment. Instead, several people noted that North
Carolina regulators worked with carriers in a constructive and encouraging fashion to help facilitate
marketplace success. In particular, there was general consensus that although the insurance department
takes rate review seriously it has not refused to give insurers most of the rate increases they have sought
because the increases have been, by and large, actuarially justied. Any concerns about regulatory
burden were expressed mainly with regard to federal requirements, such as those for establishing
qualied health plan status.
Most sources pointed to the losses insurers have been suffering in the ACA exchange market as the
primary reason for the lack of competition. No one attributed these losses to regulators’ refusal to approve
requested rate increases, which have been in the range of 20 to 30 percent the past two years. Instead,
insurers pointed to the difculty in accurately projecting what claims costs would be for a newly created
market. According to one interviewee, the large size of the state’s enrollment actually cuts against insurers’
eagerness to compete because, with a large market, “small misses [in price] equal large losses.”
One factor cited by some, but not most, sources is North Carolina’s failure so far to expand Medicaid.
In prior research, failure to expand was cited as a factor favorable to market entry, because that means
more people—those between 100-138 percent of the federal poverty level (FPL)—are eligible for highly
subsidized private coverage. However, in the current round of interviews, some sources pointed to
research indicating that states that did not expand Medicaid have experienced worse risk pools in their
individual markets, because people near poverty have more unmet medical needs than average.
Most sources, however, felt that the current lack of competition in North Carolina is temporary. They
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
8
noted that North Carolina is distinctive in having most of its potential competition for Blue Cross currently
coming from national insurers rather than from more local “homegrown” insurers that are committed to
remaining in the state. UnitedHealthcare and Aetna appear to have made national decisions about their
market exits, and no one pointed to any factors unique to North Carolina that led to their decisions to
leave this state. Moreover, several sources felt that the vacuum created by the exit of UnitedHealthcare
and Aetna will create an opportunity for other, smaller insurers to enter, if protability improves in the
individual market. Also, some sources noted that Aetna, in particular, has retained the option to re-enter
the ACA exchange market by continuing to sell individual coverage in the nonexchange market.
Future market entry is made more likely by the fact that North Carolina is in the process of moving
to managed care contracting for its Medicaid program. That process will take a couple of years, but
it is expected to result in the entry of several newly licensed insurers to serve the existing Medicaid
population. Several sources thought that it stands to reason that once a new insurer is licensed and
capitalized to serve the Medicaid population, it would also consider entering the ACA exchange market.
Also, they noted, Medicaid managed care companies are the types of insurers that have proven to be
most successful in the ACA exchanges in other states.
A few sources were more skeptical about the possibility of new market entry. First, they noted the
continuing unprotability in the ACA exchange market. They also speculated that if new managed care
carriers enter to serve the Medicaid population, their next likely target for market expansion would be
Medicare Advantage, because of its greater protability and the similarities in regulatory requirements
and care management approaches.
5.2 NETWORK FORMATION
Sources consistently said that health insurers’ potential entry into the market and geographic coverage
are driven by provider contracting. North Carolina is considered to have fairly consolidated provider
markets, as shown in the map below.
Until a few years ago, Blue Cross included a “most favored nation” clause in its provider contracts. It
required providers to give Blue Cross their best discount, but Blue Cross no longer does so and state law
now forbids this. Providers in some parts of the state are still reluctant to give favorable discounts to Blue
Cross competitors, several interview sources said. Sources also said that, considering the strong brand
recognition that Blue Cross enjoys, it is not sufcient for competing carriers to simply match Blue Cross
pricing; competitors need to offer prices that are lower to attract signicant enrollment.
Aetna and UnitedHealthcare were able to achieve competitive provider contracts in two ways. Aetna
partnered with major health systems in several metropolitan markets to offer cobranded plans, such
as with Duke Medical Center in the Raleigh area or the Carolinas Healthcare System in Charlotte.
UnitedHealthcare sought risk-sharing arrangements of different types with providers throughout the state,
including some accountable care organizations (ACOs). Also, UnitedHealthcare offered only a closed-
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 9
network gatekeeper health maintenance organization (HMO) model in the individual market and no point-
of-service or preferred provider organization (PPO) option. Cigna entered the Raleigh-area market for
2017 by offering a narrow network based on providers afliated with the University of North Carolina.
Figure 3: Hospital Systems in North Carolina (multiple shadings indicate multiple systems)
Blue Cross has also innovated with network models. It offers its standard, full-network PPO in over half
the state. But, in several rating areas where Aetna and/or UnitedHealthcare had competed it offers two
narrow network models: One that is based primarily on deeper fee-for-service discounting and the other
that follows the cobranded health system model. In about half the state’s regions, Blue Cross also offers
a tiered network, which is based on its broad network but which reduces patients’ cost-sharing for using
providers that have more favorable pricing.
These network innovations are not restricted to the individual market—they are spilling over to other
market segments. Blue Cross offers one of its two narrow network models in the group market, and Aetna
likewise offers the cobranded networks it created for the individual market to its group purchasers.
Sources said that the reluctance of Blue Cross competitors to enter rating areas where Blue Cross is
dominant is based on the unwillingness of providers to contract with Blue Cross competitors on favorable
terms. The eastern part of the state was frequently noted as an area where Blue Cross has the market
“locked up.” Some people attributed contractual unwillingness to providers’ market power, especially
where area hospitals had formed systems and purchased most existing physician practices. One
source, however, noted that provider consolidation sometimes facilitates innovative contracting, because
networked systems are more aware of the need to create incentives that achieve clinical efciencies.
Source: Blue Cross and Blue Shield of North Carolina, “Hospital Systems in North Carolina” (2014).
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
10
Also, consolidated provider structures make contracting decisions more centrally. As a result, it is easier
to form networks quickly compared with contracting separately with a large number of independent
providers.
Providers offered several explanations about their willingness or ability to negotiate with carriers for lower
rates. Representatives with several hospitals said they are willing to give signicant discounts from their
normal PPO rates. They realize it is necessary to offer competitively priced coverage and that having
some coverage is nancially much better than incurring uncompensated care. Some hospitals also see
the strategic value of supporting market entry by competitors to Blue Cross, since otherwise they feel that
Blue Cross dominates negotiations with providers.
Other hospitals, however, said they are not eager to receive patients with ACA coverage. They feel that
these patients are likely to incur higher costs and be less stable in their source of insurance. Several
hospital representatives noted that the ACA requires them to regard patients as having coverage for up
to three months after the patient stops paying premiums. As a result, the hospital learns only retroactively
that the insurer will not pay for the treatment.
When North Carolina insurers formed narrower or specialized networks for the exchange market, they
did so in one of two ways. Some carriers used existing provider contracts to assemble an ACA product.
For instance, sources said that UnitedHealthcare selected certain physicians from its broader networks
to form the gatekeeping HMO product that it developed for the nongroup market—without having to
negotiate new contracts with those physicians.
Other insurers, however, sought specic discounts or compensation arrangements with providers to form
new networks. In doing so, they tended to work with established health systems that included both
hospitals and a range of physicians. This facilitated meeting network adequacy requirements and took
less time than negotiating with a larger number of smaller or separate providers.
This selective contracting caused frustration for some providers that were excluded. Some complained
that they were willing to give substantial discounts to be included in these new networks, but the insurer
was not willing to negotiate. One informed source conrmed that this is sometimes the case, because
expanding the network would reduce discounts obtained from a larger health system. Also, one insurer
noted that expanding new networks into more territory can take substantial effort, so insurers need
to prioritize where to focus their energy and resources each year. Additional efforts in developing or
expanding networks might not make the most sense for an insurer that is not sure it is going to remain in
the market long term.
On the whole, there are no signicant indications that the networks formed for the exchange market
are too narrow. Most sources did not point to network adequacy problems, even if they tended to favor
more explicit adequacy standards. One factor that mitigated concerns about adequacy is that most of the
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 11
narrow networks are in metropolitan areas where there are many providers to choose from. In addition,
different health systems have afliated with different insurers, so that consumers, if they are well informed,
can usually nd a network that has their preferred providers.
This differentiation among health systems in their plan afliations has caused some problems, however,
when subscribers switch plans to avoid substantial premium increases. As described more below, the
more competitive nature of North Carolina’s market in previous years meant that insurers would change
places in relation to the benchmark premium on which subsidies are based. Thus, a particular network
that is affordable in one year might become unaffordable in a subsequent year. Some navigators and
agents complained that this caused people to switch plans without realizing they would be losing access
to their preferred physician or hospital.
Consumer understanding of the consequences of switching plans was initially hampered, in part, by lack
of easily accessible information about network composition. In addition, many enrollees had never had
insurance and were unfamiliar with network rules and strictures. However, several interviewees noted
that the marketplace’s information technology has improved following the initial open enrollment periods.
It is now easier than before for purchasers to determine whether their favored providers are included in
a network.
5.3 PRICES AND ENROLLMENT
Despite having below average health care spending per capita and nationally average group premiums,
premiums in the individual marketplace are among the highest in the country. Looking at the largest city
in each state and comparing prices for the second-lowest-cost silver plan, the Kaiser Family Foundation
reported that North Carolina had the fourth-highest premiums in the country in 2016.
10
Statewide, North
Carolina’s average premiums in 2016 were the highest in the country after Alaska, the U.S. Department
of Health and Human Services reported.
11
Prices varied among rating areas, however, by roughly 30
percent in 2016, when UnitedHealthcare and Aetna were in the market and by 20 percent in 2017 after
they exited. Various sources thought these variations are attributable as much to provider pricing as they
are to population health or utilization patterns.
In 2016, three out of the four highest-cost areas were concentrated in the rural coastal counties to the
east (zones 12, 15, 16), where there are fewer providers. However, in 2017, more central rural areas
emerged as the highest cost (zones 8, 9, 10, and 14). The lowest-cost areas were also mostly in the
central part of the state in 2016 and 2017, including both rural areas and also some sizable cities, such
as Raleigh, Greensboro, Fayetteville, and Wilmington, where there is greater density of both population
and providers. In both 2016 and 2017, prices were intermediate in Charlotte (zone 4) and in mountainous
counties to the west (zone 1).
For 2017, Blue Cross increased prices an average of 24 percent. This follows a 32 percent increase the
prior year. The extent to which increases of those magnitudes were needed to break even or show a
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
12
small prot is not yet known, but in prior years (2015 and 2014) Blue Cross reported substantial losses
from its marketplace plans.
Despite the relatively high marketplace premiums statewide, marketplace enrollment in North Carolina
has been relatively successful. Roughly 600,000 people are now enrolled through the marketplace,
the fourth most in the country. This represents an estimated 61 percent of potential purchasers, which
is the fourth-highest proportion in the U.S. and third highest among states with a federally facilitated
marketplace. About 90 percent of subscribers receive a premium subsidy, and almost two-thirds also
receive cost-sharing reductions, which are among the higher such proportions in the U.S. Owing to the
high proportion of enrollees who qualify for nancial assistance, North Carolina has enrolled over half of
the population that is potentially eligible for enrollment subsidies, which is fth highest in the U.S.
The fact that most marketplace enrollees receive premium subsidies causes this market to function
somewhat differently than others. Some enrollment assistors noted that pricing in their area became
more competitive when UnitedHealthcare entered in the second year, though many existing subscribers
saw substantial increases. This happened because UnitedHealthcare’s lower price affected the subsidy
that eligible consumers received for Blue Cross coverage. This subsidy is keyed to the second-lowest
silver plan in the market, which initially was a Blue Cross plan. When UnitedHealthcare entered, either it
or an Aetna plan became the second lowest, and so the available subsidy covered less of the premium
for the broad-network Blue Cross plan than in the previous year.
Here is a scenario described by more than one source: A person initially enrolls in Blue Cross’s broad
network at a highly subsidized price. The enrollee switches in a subsequent year to another carrier
after learning there would be a very large premium increase (because the subsidy was now based on a
market entrant’s plan). Then, the person learns that their preferred physician is not included in the chosen
network.
With UnitedHealthcare and Aetna exiting the market, the opposite will happen for many subscribers.
Those who kept Blue Cross plans with broader networks will see a price drop, because their subsidy
will now be keyed only to Blue Cross’s premiums, which will now be the second lowest in most locations
(except the Raleigh area, where Cigna is entering and its pricing is similar to, or below, that of Blue Cross).
Consumers who dropped their broader network Blue Cross plan may now be able to afford switching
back. Ironically, then, the loss of competition will have some immediate consumer benets, at least in the
short term, since most subscribers receive premium subsidies, and those subsidies will now be set to the
plans that previously had covered the majority of the market.
5.4 REASONS FOR HIGHER PRICES
One possible reason for higher premiums is that North Carolina allowed people to keep and renew their
noncomplying policies. Those policies are medically underwritten, so grandfathered subscribers tend
to be relatively healthier. Additionally, those policies are not community rated, so their prices remain
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 13
more favorable for younger subscribers. To some extent, then, this “continuation” policy may have kept
a healthier population out of the community-rated market. According to one actuarial estimate, almost
a third of North Carolina’s nongroup enrollment was in transitional policies in 2014—sixth highest in the
country.
12
The government estimated that, in 2015, North Carolina had 138,000 people with individual
coverage purchased outside the exchange who could have qualied for premium subsidies—fourth
highest in the country.
13
Another possible explanation for higher prices in North Carolina is the state’s decision not to expand
Medicaid. As a result, the exchange market includes people whose income is 100-138 percent of the
FPL, who would otherwise be eligible only for Medicaid. On average, such people tend to have more
serious health problems. Therefore, premiums in nonexpansion states have been estimated to be 7
percent higher, on average.
14
North Carolina is one of 22 states that, as of 2015, both allowed transitional policies and had not
expanded Medicaid. Analyzing both factors, the Kaiser Family Foundation reported that the “risk score”
for North Carolina’s enrolled population that year (which calculates expected health care costs based on
demographics and diagnoses) was 8 percent higher than the national average and 12 percent higher
than states that both expanded Medicaid and prohibited transitional plans.
15
Finally, some short-term policies that do not purport to be ACA-compliant were being sold in the state.
Because these policies are not subject to the health care law, they can be medically underwritten and
can exclude pre-existing conditions, which allows them to be priced much less expensively for healthier
people. Views differed on the extent that short-term policies were being sold, with some sources believing
that they are not a signicant part of the market, but others noting that marketing had increased, at least
until a recent federal regulatory change.
Views were split on whether these state policies account for a major component of current market prices.
Most people thought that not expanding Medicaid has caused rates to be somewhat higher, but only
some sources thought that allowing existing subscribers to maintain transitional coverage affects rates.
Those who have more direct access to relevant data felt that permitting transitional policies is only a
minor factor, especially now that the ACA market reforms are in their fourth year, due to steady attrition
among previous subscribers. Also, several sources noted that the signicance of short-term policies will
diminish following a recent federal ruling that limits these to a maximum of three months.
Adverse selection is another factor that might increase rates. Several sources felt that the nongroup
market has an unusually high number of people who sign up for insurance in order to receive expensive
treatment and then drop coverage once treatment is no longer needed. Hospital sources, in particular,
expressed frustration that they sometimes start treating patients for elective procedures who have
recently signed up for coverage but then drop it after treatment is complete (or sometimes even during
the course of treatment). Other sources said they had not seen this to any notable extent. However, at
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
14
least two multihospital systems in the state make extra efforts to enroll patients or potential patients, and
one of these hospital systems makes arrangements to waive deductibles and reimburse premiums if
patients maintain their coverage. Premiums in the rating area where the latter hospital system is located
are among the highest in the state.
A nal reason for higher premiums cited by several sources is simply the extent of unmet health care needs
in the state. North Carolina ranks in the bottom 20 percent of states in terms of overall health indicators
and spending on public health. Also, prior to the ACA, North Carolina had a higher uninsured rate than
the national average. Thus, several observers and market participants noted that it is natural that people
who were most eager to sign up did so because they needed treatment. They added that enrolling as a
means to obtain treatment is perfectly appropriate as long as people maintain their coverage.
According to one experienced navigator, one reason people drop coverage or that healthier people don’t
enroll stems from the paperwork burden that the federal government requires to document eligibility.
Sometimes documents or explanations had to be sent in several times to complete enrollment or avoid
disenrollment, the navigator said. People who do not have a pressing need for treatment are more likely
to fail to complete an enrollment process that they nd to be frustrating or cumbersome.
To counter adverse selection, North Carolina insurers ceased paying any agent commissions in 2016
following the end of open enrollment, reasoning there is more adverse selection among people who
sign up during special enrollment. Blue Cross reinstated commissions for the 2017 open enrollment, but
the commission percentage is lower than it has been in past years, causing several brokers who were
interviewed to complain that they cannot continue serving this market segment.
Section 6 – Summary and Conclusions
Although North Carolina currently has one of the least competitive exchange marketplaces in the country,
it is not obvious that most consumers are suffering as a result. Relatively high premiums are offset for
most purchasers by premium subsidies. Moreover, these higher premiums are not obviously due to lack
of competition among insurers. Insurers so far have posted losses rather than prots from the ACA’s
nongroup market. Thus, higher prices are being driven mainly by underlying health care costs. Those
costs result both from provider pricing and from the health needs of people who are enrolling.
More serious health problems are attributable, in part, to the general population health in North Carolina
and, in part, to state policies that have resulted in a worse risk pool for the exchange market (not expanding
Medicaid, and keeping transitional plans). A worse risk pool also might be due to enrollment efforts that
target people with the greatest health care needs.
The difculty in negotiating competitive provider networks is attributable both to provider consolidation
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 15
and simply to the small size of the provider community in rural areas. It is for this reason that a number
of interview sources enthusiastically supported the idea of a “public option.”
Others, though, were somewhat skeptical or more reserved about a public option, noting that a lot depends
on what exactly a public option is and how it would function. Notably, however, outright opposition to the
idea was heard only infrequently, indicating general recognition of the fact that, in some parts of the state,
a more competitive insurance market may not be feasible.
One factor that mitigates the current lack of competition among insurers is the extent of potential
competition, at least in more populous areas. Although Blue Cross remains the dominant carrier, increased
competition is inevitable, many sources said. No barriers to market entry were noted beyond the usual
regulatory requirements to establish nancial solvency. Aetna remains poised to re-enter the exchange
market if it chooses to do so in the future, and UnitedHealthcare might be able to re-enter through a
subsidiary, even if the parent company is excluded for ve years. In addition, the state’s recent adoption
of managed care contracting for Medicaid is expected to bring in several new carriers that also could
enter the nongroup market.
Despite lacking a choice of carriers, the individual market in North Carolina offers a choice of distinct
types of networks. In response to Aetna’s earlier formation of ACO-type networks built around prestige
hospital systems and to UnitedHealthcare’s earlier embrace of a gatekeeping HMO platform, Blue Cross
now offers several types of PPO structures—full, tiered, and limited. Blue Cross also offers a range of
choices in patient cost-sharing designs. And, the network innovations that Blue Cross and its previous
competitors developed for the nongroup market are also being offered in the group market. Thus, there is
evidence of spillover benets to the employer market from competition in the exchange market.
Finally, signicant concerns about network adequacy were not voiced frequently. Instead, concerns were
related mainly to helping consumers understand the network consequences of their choices and the need
to obtain accurate information about which providers are and are not in a particular networks.
Overall, the following conclusions can be drawn from this study:
• Vigorous competition among insurers initially emerged in markets where the population
density and differentiation among providers could support competing networks.
• Vigorous insurer competition may not be achievable in parts of the state that are more
rural or where providers have consolidated.
• The sharp drop-off of insurer competition in 2017 is not due to factors in the North Carolina
regulatory environment, but instead due to across-the-board decisions by national insurers.
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
16
• There is a good possibility that, if protability is restored in the nongroup market, more
insurers will enter (or re-enter) the North Carolina market.
• There are some indications that adverse selection among enrollees has contributed to
premiums being higher in North Carolina than elsewhere in the country.
Based on these observations, the following steps could be considered for increasing competition and
making premiums more affordable:
• Create a public option in areas where insurer competition is less feasible.
• Take steps to increase competition among providers, especially outside the largest urban
areas.
• Change or modify policies that might contribute to adverse selection among enrollees.
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS 17
Endnotes
1. Kaiser Family Foundation, “Number of Issuers Participating in the Individual Health
Insurance Marketplaces (2014 – 2017),” accessed Nov. 18, 2016, http://kff.org/
other/state-indicator/number-of-issuers-participating-in-the-individual-health-insurance-
marketplace/
2. Jon R. Gabel, Heidi Whitmore, Adrienne Call, Matthew Green, Rebecca Oran, and
Sam Stromberg, “Modest Changes in 2016 Health Insurance Marketplace Premiums
and Insurer Participation,” Commonwealth Fund, January 2016, accessed Nov. 18,
2016. http://www.commonwealthfund.org/publications/blog/2016/jan/2016-health
insurance-marketplace-premiums
3. Kaiser Family Foundation, “Total Number of Residents (2015),” accessed Nov. 18, 2016.
http://kff.org/other/state-indicator/total-residents/?currentTimeframe=0
4. Kaiser Family Foundation, “Median Annual Household Income (2015),” accessed Nov.
18, 2016. http://kff.org/other/state-indicator/median-annual-income/?currentTimeframe=0
5. Kaiser Family Foundation, “Percent of Adults Reporting Fair or Poor Health Status, by
Gender (2015),” accessed Nov. 18, 2016. http://kff.org/other/state-indicator/percent-of-
adults-reporting-fair-or-poor-health-status/?currentTimeframe=0
6. Kaiser Family Foundation, “Health Care Expenditures by State of Residence (2009),
accessed Nov. 18, 2016. http://kff.org/other/state-indicator/healthspending-per
capita/?currentTimeframe=0
7. Michael A. Morrisey, Alice Rivlin, Richard Nathan, and Caitlin Brandt, “Early Assessment
of Competition in the Health Insurance Marketplace,” Brookings Institution Center for
Health Policy, December 2015, https://www.brookings.edu/wp-content/uploads/2016/07
RevisedASPE-Final-Draft-Document-11916.pdf
8. Kaiser Family Foundation, “Individual Insurance Market Competition: 2014,” accessed
Nov. 18, 2016, http://kff.org/other/state-indicator/individual-insurance-market-competition/
9. These gures are from a knowledgeable interview source, derived from carriers’ recent
rate lings. They are broadly consistent with Center for Consumer Information and
Insurance Oversight data reecting marketplace-only enrollment, although the CCIIO
data suggest somewhat greater market share for Blue Cross of about 70 percent statewide.
10. Kaiser Family Foundation, “Monthly Silver Premiums for a 40 Year Old Non-Smoker
Making $30,000/Year: 2016-2017,” State Health Facts, accessed Oct. 16, 2016,
http://kff.org/other/state-indicator/monthly-silver-premiums-for-a-40-year-old-non-smoker-
making-30000year/?currentTimeframe=0
11. U.S. Department of Health and Human Services, Ofce of the Assistant Secretary for
Planning and Education, “Health Plan Choice and Premiums in the 2017 Health Insurance
Marketplace,” October 2016, https://aspe.hhs.gov/pdf-report/health-plan-choice-and
premiums-2017-health-insurance-marketplace
12. U.S. Department of Health and Human Services, Ofce of the Assistant Secretary
for Planning and Education, “About 2.5 Million People Who Currently Buy Coverage Off-
Marketplace May Be Eligible for ACA Subsidies” October 2016, https://aspe.hhs.
gov/pdf-report/people-who-currently-buy-individual-market-coverage-could-be-eligible-
aca-subsidies
NORTH CAROLINA CENTER FOR HEALTH POLICY AT BROOKINGS
18
13. Ibid.
14. Aditi P. Sen and Thomas DeLeire, “The Effect of Medicaid Expansion on Marketplace
Premiums,” ASPE Issue Brief, September 2016, https://aspe.hhs.gov/pdf-report
effect-medicaid-expansion-marketplace-premiums
15. Ashley Semanskee, Cynthia Cox, and Larry Levitt, “Data Note: Effect of State Decisions
on State Risk Scores,” Kaiser Family Foundation, October 2016, http://kff.org/health-
reformissue-brief/data-note-effect-of-state-decisions-on-state-risk-scores/
