Less is more?

Having a variety of products to choose from is usually good for consumers, and in Chicago, that means a choice of deep dish pizza from Gino's East, Giordano's, Lou Malnati's or Pizzeria Uno. But can customers have too many choices? Michael Gelder, who has spent many years in the Windy City, says yes.

Gelder is a senior healthcare policy adviser to Illinois Gov. Pat Quinn, a Democrat who last week announced that six carriers have applied to offer 165 qualified health plans on its health insurance exchange. It's far fewer than officials previously projected, but Gelder said it's enough.

States are beginning to get a handle on how many choices they'll offer consumers this fall as the Patient Protection and Affordable Care Act's experiment with creating competitive insurance markets out of whole cloth takes shape. Early evidence suggests competition may not be as robust as the law's drafters intended, at least not at first. Some competitive barriers will remain, and even the nation's largest carriers will sit on the sidelines in some states to see what happens next year.  

Officials in President Barack Obama's home state had anticipated 260 health plans would be offered by 16 insurance carriers, based on a survey the Illinois Department of Insurance conducted last fall. Gelder, though, said he is pleased with the level of interest. There have to be enough insurers so that prices are competitive, but not so competitive that carriers can't gain market share and make money, Gelder said. And, he added, “not so many plans it becomes overwhelming for consumers.”

Gelder also noted that it's not clear at this point how many of the plans submitted in Illinois will be approved as qualified health plans for the Illinois exchange after the state Department of Insurance evaluates them. Illinois, along with New York and California, is one of three large states that have elected to run their own health insurance exchanges.

California has received expressions of interest in participating in its marketplace from 33 carriers, said Peter Lee, executive director of the California Health Benefit Exchange. Lee declined to say how many insurers formally submitted applications to offer plans in the marketplace, though he added that the state aims to announce tentative certification for plans selected for the exchange around May 23.

The Golden State's market will be divided into 19 regions, and not all plans selected will be available in each area. However, Lee said he believes all the regions will have competitive marketplaces.

Meanwhile, in Vermont, a state that has aggressively embraced healthcare reform, two carriers have submitted applications and rates for exchange plans for 2014 so far, Blue Cross and Blue Shield of Vermont and MVP Health Care. Vermont Health Connect Director of Education and Outreach Sean Sheehan said the state is in the midst of reviewing a filing from a third player, the Vermont Health Co-op.

As some state-run exchanges have begun to evaluate plan submissions from carriers, some of the largest U.S. insurance companies are giving lukewarm signals about their interest.

During quarterly earnings calls last week, Aetna President and CEO Mark Bertolini and Humana Chief Operating Officer James Murray each said his company would likely offer plans in only 14 states. And UnitedHealth Group President and CEO Stephen Hemsley told investors last month that the company would be “very selective in where we participate and do not believe the exchanges will be a significant factor for us.”

WellPoint, a Blue Cross and Blue Shield licensee in 14 states, said it would likely compete in all of those exchanges. Chief Financial Officer Wayne Deveydt told investors in an April 24 call that the company had nearly finished its plan design and pricing for each of those markets.

But just how competitive each state's exchange will be will vary state-by-state, according to Joel Ario, managing director of Manatt Health Solution in New York and former director of HHS' Office of Health Insurance Exchanges. Ario said that greater competition among carriers is likely to be seen in larger states, rather than smaller ones, which are dominated by a few carriers.

The exchanges may change that dynamic, Ario said. “In smaller states, the exchange has lowered barriers to entry for (a carrier) looking to breaking into a smaller market,” Ario said. However, he added, in 2014 many smaller insurers will wait to see how the exchanges perform, delaying entry until 2015 or 2016. Ario also sees a role for consumer-oriented and -operated plans, better known as CO-OPs, in exchanges, even though the remaining $1.4 billion in federal funding for the $6 billion program was cut in January as part of a deal to avoid the fiscal cliff. “They're going to get (more) attention than their size would otherwise warrant.”

But others are dubious that the exchanges will fundamentally change the competitive dynamic in many markets.

“I am seeing many health plans deciding to just pass on entering the exchange states that are not in their core markets—at least for the first year,” Robert Laszewski, a former insurance executive and president of the consulting firm Health Policy and Strategy Associates, wrote in a note to clients last week. “Why risk the political and customer backlash for hiking rates and maybe not being able to issue an enrollment card on Jan. 1? Why take on more of an IT headache then they already have?”

John Holahan, director of the Urban Institute's Health Policy Research Center, wrote in a report last fall that in “markets with many insurers and a dominant hospital, attracting plan enrollees generally requires the inclusion of the hospital system in the network.”

Smaller insurers, Holahan wrote, will still struggle to negotiate prices with those dominant providers. “In markets where there are many insurers and many hospitals, outcomes remain hard to predict, but the potential for greater competition on price will be enhanced by the managed competition structure inherent in the” reform law.

Follow Jonathan Block on Twitter: @MHjblock