An Empirical Study of Health Insurance Firm Participation over Time in Rural Counties

Research center:
Lead researcher:
Project funded:
September 2017
Project completed:
June 2019

As 2017-18 Health Insurance Marketplace (HIM) plan participation data have shown, it is increasingly problematic to ensure that all counties in the United States have even one firm – let alone the three or four that would be likely to deliver lower costs – offering coverage options in some rural areas. However, this problem is not new; significant circumstantial and anecdotal evidence suggests that network formation and uncompensated risk have long presented challenges in such areas. We hypothesized that if there are few providers and low population in a geographic area, firms are less likely to offer coverage. Moreover, if only one firm offers coverage, its rates will be higher not just due to lack of competition (i.e. the firm exploits its market power to increase profits) but also due to the inherent high costs of providing care in these areas due to these two issues. The goal of the research was to increase our understanding of how costs of providing health insurance may differ fundamentally in sparsely populated areas by drawing on multiple data sources (FEHBP, MA, HIMs) over time. Due to higher "fixed" costs of network formation and riskier environment, it may be the case that some small markets resemble natural monopolies, meaning that conditions are best-suited for at most one firm to participate. Our goal was to characterize these costs and in doing so to hone in on a tipping point in terms of a lack of providers, low population density, and possibly a set of other descriptive characteristics of rural areas that will help predict which rural areas are at risk. We employed multivariate modeling techniques to predict firm participation, and we made conclusions by applying our results to analyze possible policy changes that would address this fundamental aspect of rural health insurance markets.