Are Marketplace Premiums Higher in Rural Than in Urban Areas?

Cars parked and driving down city street.

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.

The Issue

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.

Key Findings

  • 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.

Conclusion

Although many factors go into the cost of coverage, competition among providers is a critical factor driving premiums lower in America’s urban centers.

About the Urban Institute

The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector. Visit the Urban Institute’s Health Policy Center for more information specific to its staff and its recent research.

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