Analysis of federal data shows insurance plans in urban areas had significantly lower premiums than plans in rural areas for the most commonly purchased coverage under the Affordable Care Act.
Researchers found urban-area premiums were associated with lower marketplace premiums in both 2016 and 2017, for the second-least expensive silver plan, which covers at least 70 percent of health care costs. Although urban areas tend to have health care systems that are more expensive, they also have large populations that invite competition among plans and spread the financial risk associated with health care coverage among more people, thus lowering premium prices.
Rural areas, in contrast, typically have a lower cost of living, but fewer people spread out over a greater area, which can discourage competition among health plans. In areas with Medicaid-managed care (MMCO) plans—which now offer private coverage to low-income residents—or provider-sponsored plans, which are offered directly by a health system or group of doctors instead of a traditional insurance company were associated with significantly lower premiums in 2016 and 2017.
Of the 40 states with both predominantly urban and rural rating regions, the average benchmark premium was higher in rural areas than in urban areas in 32 states in 2016.
In 2016, on average, benchmark premiums were $26 more per month (9% higher) in rural areas than urban areas; the population-weighted average difference in premiums was $20 per month (7% higher in rural areas).
In 2017, rural-area benchmark premiums were, on average, $39 more per month (10% higher) than those in urban areas.
Although many factors go into the cost of coverage, competition among providers is a critical factor driving premiums lower in America’s urban centers.
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