According to Kaiser Family Foundation (as of Aug 4, 2017) 17 counties are at risk of having no insurers for the ACA exchange for 2018.

For background/context: That would impact 9,600 current enrollees. The distribution is: 14 Counties in Nevada, 1 in Ohio, 1 in Indiana and 1 in Wisconsin. Of those 17 counties, 9 had only one insurer and 5 had two insurers in 2017.

In absence of any competition why wouldn't insurers be clamoring to fill the void, potentially making them the one and only insurer?

Some "experts" maintain that, in the absence of competition (i.e. only one insurer in the county) insurers can demand exorbitant premiums (because the treasury is paying the bulk of the premium), while other "experts" maintain that premiums are controlled as a function of claims history for that given demographic of the county.

In either case, why wouldn't an insurer be delighted to have a local monopoly in the exchange for a given county?

I realize that it looks like a question like this has already been asked, however this question is addressing why rather than what happens.

UPDATED (9/3/17) Kaiser Family Foundation now reports that insurers for ALL counties have been secured for the 2018 .gov exchange

2 Answers 2


In absence of any competition why wouldn't insurers be clamoring to fill the void, potentially making them the one and only insurer?

Only in states where premiums can increase without limit. Some require regulatory approval of increases.

There's also another problem. 80% of Obamacare (Patient Protection & Affordable Care Act) premiums are required to go to approved medical expenses. Fraud investigation, management overhead, and profit must come out of the remaining 20%. If expenses fall below 80%, then the companies have to rebate the excess at their cost (i.e. they pay the cost to rebate). But if medical expenses are above 80%, they can't collect more in premiums to make up for that. And they can't collect anything if management overhead takes 20% or more of their costs.

In the first few years of Obamacare, there was a program where the government would bail out insurers in that situation. But that was billed as a temporary program and it is no longer in operation.

The 80% limit creates a situation where the upside is limited, but the downside is not. Why would an insurer want to take that kind of risk?

The only insurers who can profit in this situation are ones who can set the premiums and medical expenses high enough. Insurers have no incentive to control costs, as the higher that costs are, the higher their profit. An insurer who careful reviews medical expenses to ensure that they contribute to the health of the customer has to both pay to do that and loses money as a result. What was intended as a cost control measure actually forces premium increases.

Insurers can always rebate excess premiums. But if they set premiums too low, they have no way of recovering that. This forces them to maximize their premiums. But it doesn't ensure that they make money. If there are large, actually required medical expenses at the end of the year, they can still end up losing money. Because until the end of the year, they want to spend 80% of the premiums they collected on medical expenses. That maximizes their profit (as their profit is limited to less than 20% of approved medical expenses).

The net result is bad for both the insurer, which has to act in a bizarre way to get any profit, and for customers. Yes, they have an easier time getting procedures (both necessary and unnecessary) approved in the earlier parts of the year. But as the year comes to a close, there is effectively a hard limit on expenses, necessary or not. So in return for easier approvals in part of the year, they get much more difficult approvals for the remainder.

A traditional insurance company works the opposite way. It estimates its expenses and chooses a premium that is above expenses and competitive with that of other insurers. So it has competing goals. If it raises premiums too high, no one buys its insurance. If it sets premiums too low, it loses money. But its goals align with those of customers. They want premiums as low as possible but all their necessary expenses covered.

With both Obamacare and traditional insurers, if the customers are exceptionally sick and have higher than expected medical expenses, the insurer takes a loss. But traditional insurers balance that. If the customers are exceptionally healthy and have lower than expected medical expenses, they make a profit. Obamacare insurers have no balance there. They have an extra cost in that situation.

On the bright side, the Obamacare exchanges are only a small part of the market. But that also limits the benefit from participating. The exchanges aren't profitable for insurers. And the risk is high. One customer in Iowa costs $12 million. Iowa only has about 72,000 customers on the Obamacare exchange. That's about $170 for each customer in Iowa. Or about $14 a month.

In Iowa, they can plan around that existing customer and charge every customer an extra $17.50 (the $14 in medical expenses plus the allowed $3.50 overhead) a month. But what happens if there's another one? Or what happens if there are a few of the most expensive procedures, like transplants? They can't plan for those expenses. If someone happens to need a million dollar transplant, that's a big hit to an insurer.

What if there is a bad flu season? Instead of one very expensive customer, there are many somewhat more expensive customers. From the insurer's point of view, it's just as bad to have every customer cost an unexpected $15 a month as to have one customer cost $12 million.

Traditionally, insurers would handle this by reinsuring with other (perhaps larger) insurers. Or by saving premiums from one year to use in another. Or by accepting a loss this year in the expectation of making it back in future years. But Obamacare doesn't allow those solutions. The 80% has to be spent on approved medical expenses in the current year.

  • Interesting citation from Politifact, What caught my eye however was "94 out of 99 counties in Iowa in 2018 will not have an insurer in the exchange," House speaker Paul Ryan said on May 19 2016. As of August 4 all 99 counties in Iowa will have at least one insurer in the exchange. As to the mainstay of your argument (the inability of premium adjustment due to unexpected claims aka "the bad flu season"), I happen to have an ACA compliant policy and the premium changes approximately every quarter, some times up, sometimes down, insurer says that is premium adjustment to maintain MLR level.
    – BobE
    Aug 13, 2017 at 3:51
  • But is it ever higher than it was when you selected it on the exchange? It sounds like they are reducing premiums to maintain the MLR level for the year. E.g. charge 100% of the premium in the first quarter; 80% in the second; and 95% in the third. That's going down and up but never above 100%. And this still doesn't help them in the last quarter, when they're stuck with whatever they chose. If they end up with an excess, they still have to rebate. And if they're short, they have no time left to adjust.
    – Brythan
    Aug 13, 2017 at 3:57
  • @ Brythan "Only in states where premiums can increase without limit." Can you cite states that allow premiums to increase without limit? I haven't been able to identify any states that don't exert some form of regulatory control over premiums. If that is the case, then your suggestion is that insurers are somehow disinterested in becoming the 'sole provider'. Puzzling, as working towards market dominance seems to be a cornerstone in a competing market.
    – BobE
    Aug 13, 2017 at 15:26
  • Relative the MLR ( that I maintain changes the competitive market argument). ACA outsourced development of nationwide definitions and methodologies to the National Association of (State) Insurance Commissioners naic.org/cipr_topics/topic_med_loss_ratio.htm They drew on the experience that many states have had using MLR s far back as 1980. The MLR concept is not some innovative idea that ACA came up with. My point is that if the MLR worked the way you seem to describe, to the detriment of the market, it would have been revealed long before the ACA.
    – BobE
    Aug 13, 2017 at 15:44

The exchange is partially funded via the subsidies for low income subscribers. The Trump administration made both the future of the ACA and said subsidy payments an uncertainty. That made it a riskier market to enter. Insurance companies don't like adding risk when they can avoid it.

  • 1
    A straight-forward answer, and likely the most correct answer! BTW, the CSR subsidy is paid out monthly to insurers, it is that subsidy that Trump is threatening to cut off. As far as I know the June payments have been made, but not the July payments. The purpose of the CSR subsidy is to lower the cost of deductibles and out-of-pocket limits as contrasted with the advanced premium supports that lowers the premium costs for eligible exchange participants.
    – BobE
    Aug 13, 2017 at 3:24
  • kff.org/health-reform/issue-brief/… Kaiser reports on Aug 10 that helps to quantify how insurers are reacting to the Trump administration indecisiveness on individual mandates and CSR subsidies. Data taken from rate filings for next year, some insurers are increasing...
    – BobE
    Aug 14, 2017 at 2:51
  • premiums as much as 20% to account for the loss of CSR subsidies. The report has useful information.
    – BobE
    Aug 14, 2017 at 2:55

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