Rural Areas See Higher HIX Premiums, Fewer Options

The cost of having fewer choices doesn't spare healthcare. Most rural residents can expect to pay more for coverage purchased on health insurance exchanges.

Competition among health plans is a critical component that tempers prices for individual health insurance coverage under the exchanges set up by the Patient Protection and Affordable Care Act.

It makes sense. Give healthcare consumers more informed, apples-to-apples choices among several health plans competing for business on an open exchange and the consumers will gravitate to the best value.

That works in urban and more densely populated areas that have a number of health plans competing for customers using a plethora of providers. What about sparsely populated rural areas?

The answer is not surprising. People in rural areas mostly have fewer coverage options, and because of that most of them—though certainly not all of them—will pay higher premiums.

That's according to a study from the University of Pennsylvania and the Robert Wood Johnson Foundation. It's hard to provide a blanket conclusion to the report because it is fairly nuanced and provides several scenarios involving a 50-year-old non-smoker shopping for silver plan coverage in 2014.

"Rural residents do not have as many choices as urban residents in terms of premiums, issuers, plans, and plan types. They also have less availability of Health Maintenance Organizations, Exclusive Provider Organizations, and Preferred Provider Organizations, and greater availability of Point of Service plans," the study says.

"Most notable is the fact that EPOs are available to half the number of rural residents as urban residents. These differences in plan types may reflect the notion that it is easier to develop and more strictly enforce a restrictive provider network in urban areas than in the more sparsely populated rural areas where there are fewer convenient choices of providers."

The bottom line is that most rural residents can expect to pay more. The study found that "monthly premiums are slightly higher in in rural areas than urban areas ($387 vs. $369)," and that "monthly premiums are meaningfully lower in states that are the most urban when compared to the least urban ($402 vs. $452)."

In 32 states, rural residents paid more in silver premiums than urban residents. In seven states and the District of Columbia there was no difference, or the data wasn't available, and in 11 states rural residents paid less.

"It seems to be simple supply and demand. It's the cost of having fewer choices," saysTimothy Putnam, president/CEO of Margaret Mary Health in Batesville, IN. "In our region there is just one product. There is one choice that people have and this is what comes with it. You take it or leave it. There is demand out there, but limited supply, so we know what happens to prices when that occurs."

On one extreme, the 9% of people in Nevada who live in rural areas would have had to pay about $554 a month for silver coverage this year, $201 more a month than urban residents. On the other extreme, the 55% of Mississippi residents who live in rural areas would have paid $470 a month for silver premiums, $72 less than Mississippians in urban areas.

The differences don't break down neatly along Red State/Blue State lines. Minnesota's rural residents could expect to pay $55 more per month for a silver plan than would urban residents. In Texas, rural residents would pay $20 less per month for similar coverage.

In Indiana, where Margaret Mary Health is located, rural residents pay $452 per month in silver premiums, only $1 more per month than urban residents. However, that is a statewide average that can fluctuate wildly among counties and healthcare service areas, again depending mostly upon competition.

2015 HIX Premium Hikes May Top 7%

To underscore the importance of competition, another study this month by the Urban Institute looks at premium costs in 10 states with varying numbers of plans in their exchanges, and made no distinctions between rural and urban settings. Not surprisingly, the states with more competitive health insurance exchanges saw significantly lower premiums than did states with less-robust exchanges.

It's unfortunate that rural Americans will likely have to pay a penalty in the form of higher premiums, but I have to confess that I was expecting the disparities to be much greater.

If we factor out the extremes on both ends, Mississippi, Nevada, and other states that skew the findings, the difference between many states is negligible. In 26 states, the premium costs fluctuate no more than $20 per month in either direction. Given the complexity of PPACA, the frenzied start-up for the exchanges, and the heels-dug-in resistance from many states, it could have been a lot worse.

It's hard to draw conclusions from all of this. One year does not constitute a trend. The focus now will be on premium costs in 2015, and whether the variable between urban and rural coverage widens or narrows.