Another day, another insurer drops out of the Arizona health insurance exchange market. That pattern has repeated through the summer at a rate worse than any other state.

In most states, markets with two to four competitors are falling to one or two (usually one in rural markets). Those departing competitors are mostly national insurers like UnitedHealthcare and Aetna. Even in medium-sized metro areas, a few competitors are hanging on.

But not in Arizona, where the collapse of competition might be the nation’s most acute. In 2015, Arizona had 11 exchange carriers, including every major player. By 2016, it fell to eight.

On paper, Arizona still has three insurers, although most counties have one option (for the uninitiated, Arizona has just 15 counties, all covering larger geographies than counties in most states). Blue Cross Blue Shield of Arizona still sells plans for 2017, just not in Maricopa or Pinal. It will be the only carrier in Arizona’s rural counties. Health Net also dropped those counties, only selling in Pima for 2017.

Pinal County, wedged between populous Maricopa and Pima counties, could be the nation’s first county to go through an open enrollment with zero exchange options. Some arm-twisting might convince a carrier to return to Pinal with higher premium rates.

But Pinal has less than 400,000 residents and exchange enrollment is not high. What looks worse is Maricopa County. The nation’s fourth-most populous county has nearly 3.9 million residents, and could have just one option in its exchange, Cigna. Cigna operates its own medical group in Maricopa County, so it is unlikely to leave. But having one option won’t sit well with Maricopa consumers.

So, what happened? Carriers offered relatively affordable premiums in Arizona’s first few open enrollments. Exchange signups failed to reach expected levels. Losses mounted for insurers. Even those staying in the exchange for 2017 sought high premium rate hikes.

Arizona also does not have many regional and provider-owned plans – most insurers tied to health systems operate mainly in the Arizona Health Care Cost Containment System, the state’s Medicaid program. Two Maricopa insurers owned by for-profit health systems, Health Choice Arizona (IASIS Healthcare) and Phoenix Health Plans (Tenet Healthcare), withdrew from the exchange for 2017.

Despite passing Medicaid expansion (which restored a previous state-funded expansion of the program to childless adults), ACA opposition has never abated, especially in the state legislature.

Arizona’s swift drop in competition should be a warning for other states, especially in the Mountain West. Utah, Wyoming and Colorado have seen competition sharply reduced. While no one expected Wyoming to become a draw for new insurers, Utah and Colorado boasted relatively robust exchange markets in previous years, only to see steady carrier withdrawals in 2016 and 2017.

Nevada could be of concern – it doesn’t have many competitors, but its population is concentrated around Las Vegas (Clark County) and enrollment has not reached expected levels. Nevada is somewhat buffered by requiring that its Medicaid MCOs also sell exchange plans, keeping UnitedHealth and Anthem in its exchange.

The Centers for Medicare & Medicaid Services proposed changes to the risk adjustment mechanism for exchange plans, something the industry demanded as financial losses on exchange business have grown. Instituting those changes could lead some national players to return to Arizona for 2018. For now, the Grand Canyon State will be the poster child for troubled exchanges, limping through 2017 open enrollment.


Follow Bill Melville on Twitter: @BillMelvilleDRG

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