There’s Only One Grocery Store in Most Rural Areas. Should We Expect Two Health Insurers?


“America faces an urgent crisis in its health care system,” Tom Price, the Secretary of Health and Human Services, wrote in The Wall Street Journal this week. “Costs are skyrocketing and choices are disappearing on the individual and small-group markets. Many people now confront the real challenge of having no choice in their health coverage.”

But the draft proposal released by the Senate does little to address the fundamental reasons insurers shun rural markets. The companies, particularly the large for-profit insurers, have always been reluctant to offer coverage in sparsely populated areas because there are simply not enough potential customers to make it worth their while. If too many of those customers need expensive medical care, there are too few healthy customers to spread those costs around.

The insurers also have a tougher time developing networks and negotiating low prices from hospitals and doctors because there are so few choices. When there’s only one hospital in town, it’s hard to negotiate a good price for medical services. And once a hospital and insurer have struck a deal, it can be harder for new insurers to enter the market on favorable terms, since there aren’t competing hospitals to use for negotiating leverage.

“These areas are not going to be solved by a market, unless there is some magic internet substitute for providers that pops up some day,” said Jon Kingsdale, an associate professor at the Boston University School of Public Health.

Mr. Kingsdale ran the Massachusetts Health Connector, the state’s exchange before Obamacare, and experienced firsthand the challenges of attracting insurers to less populous regions of a state. He pointed out that insurers in New England tend to pay higher prices to small, rural hospitals than they do to big, urban academic teaching hospitals with all the latest treatments.

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A landscape in Nebraska. Places that are sparsely populated are less attractive to health insurers.

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George Etheredge for The New York Times

Even before the Affordable Care Act took effect in these areas, many states had little competition. While there was an initial surge of interest by carriers in the market, the law has not fixed the problem. The markets that suffered from a lack of carriers before the law are often the same ones struggling to find insurers to sell individual policies now.

“It’s not like, prior to the Affordable Care Act, we had these really highly functioning insurance markets that all of the sudden the Affordable Care Act broke,” said Craig Garthwaite, an associate professor at the Kellogg School of Management, who studies health care markets. Mr. Garthwaite said rural Americans live with less choice in many businesses and services, not just health insurers. Most rural areas have only one grocery store and school, and only a few restaurants, too. “We’ve always had trouble in these markets,” he said.

If the Senate bill becomes law, the problem could become worse. The legislation cuts back on the federal subsidies that many low- and moderate-income Americans use to buy health insurance, with sharper cutbacks for Americans nearing Medicare eligibility.

With slimmer subsidies, many experts predict that fewer Americans would sign up for plans. “Reducing the generosity of the subsidies makes all the markets less attractive for any issuer,” said Katherine Hempstead, a health policy expert at the Robert Wood Johnson Foundation. Rural residents, who tend to be older, may be particularly affected by the cutbacks.

The Congressional Budget Office highlighted the risk in its evaluation of the Republican bill this week. “Some sparsely populated areas might have no nongroup insurance offered because the reductions in subsidies would lead fewer people to decide to purchase insurance — and markets with few purchasers are less profitable for insurers,” it wrote. This assessment differed from its evaluation of the situation under current law, where it said the markets would be essentially stable.

The bill could attract insurers in the short term with new funding to help stabilize insurance markets, but the longer-term changes would probably make the rural market no more attractive, said Deep Banerjee, a credit analyst for Standard & Poor’s.

“It doesn’t actually resolve some of the issues the market is facing today,” Mr. Banerjee said. Over the long run, “it’s a smaller market,” he said, “and most likely a riskier pool” of people to cover. As the market deteriorates, he thinks the insurers would leave again.

State regulators may have a role to play in urging insurers to enter less desirable markets. They have often cut deals with insurers, allowing them to sell in attractive places, only if they agreed to operate in less popular ones, too. But Mr. Kingsdale said that those types of negotiations cannot be easily regulated at the federal level.

Mike Kreidler, the Washington state insurance regulator, was faced with the prospect of bare counties but persuaded insurers doing business elsewhere in the state to expand into those markets. Mr. Kreidler, who is a strong supporter of Obamacare, says the current uncertainty makes it a hard sell for the companies, but he argues the Senate bill could make it even more difficult.

“The lower incomers are going to abandon ship like crazy,” he said. The Senate plan would also introduce the prospect of broad state waivers that could significantly change the rules governing the market, including whether insurers can offer plans excluding certain medical conditions. “All of that adds so much uncertainty and unpredictability,” he said. “I fully anticipate a collapse of the individual market.”

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