Ins. Companies Fear Competition
GOP senators seem to think that a public health insurance option would be unfair competition. But how can we take that concern seriously when so few insurance companies actually face any competition at all?
Defenders of the status quo on health care like to point out that a public option will destroy the system of robust free-market competition that currently exists.
Sen. Richard Shelby (R-AL), speaking earlier this month on Fox News, called President Obama’s plan the “first step in destroying the best health care system the world has ever known.” A public option, Shelby added, would “destroy the marketplace for health care.”But the notion that most American consumers enjoy anything like a competitive marketplace for health care is flatly false. And a study issued last month by a pro-reform group makes that strikingly clear.
The report, released by Health Care for America Now (HCAN), uses data compiled by the American Medical Association to show that 94 percent of the country’s insurance markets are defined as “highly concentrated,” according to Justice Department guidelines. Predictably, that’s led to skyrocketing costs for patients, and monster profits for the big health insurers. Premiums have gone up over the past six years by more than 87 percent, on average, while profits at ten of the largest publicly traded health insurance companies rose 428 percent from 2000 to 2007.
Part of me wonders why the Obama Administration doesn’t ask the DOJ anti-trust lawyers to look into these situations. It might be because the anti-trust law is now so weak that these monopolies and near-monopolies are not actually illegal. It might be that the Obama Administration sees that moves as a kind of nuclear option. It might be that the move would be counter-productive.
One of the surest ways for an insurance company to remain profitable is to become as large as possible. Now, this is obviously true of almost every business, but it is exceptionally true in the insurance business. Insurance companies can keep costs down and thus profits up by denying care, by becoming more efficient, by spreading risk and by negotiating lower costs. Becoming huge is a massive advantage in all but the first option. The last, in particular, is critical: insurance companies do best either when they can guarantee that their clients will not use the services. Short of a crystal ball, one of the best ways to get to that point is to have a large enough pool of clients that the odds are the mass will pay in more than they take out in services. So if you break these companies into smaller units, you might have the effect of driving prices even higher.
A health insurance market, then, might not be possible absent a real public option. Because of the odd requirements of an insurance market, it may not be possible for real competition to exist without a government plan and thus impossible for the market to do anything but exacerbate and already bad situation. In order to have a market in health insurance, then, we may need quite a bit of government participation.
As I posted over at my place today, “According to conservatives, government can’t fix any of our problems except for healthcare, which it would fix too well.” Health insurance is for the healthy; by design, sick people cannot afford it, therefore the entire concept of the “free market” applying to healthcare is flawed, because the people who need it the most will never get it.
Or, as Krugman noted this week, healthcare is not a bowl of cherries.
If a health insurance market might not be possible, why are all the other types of insurance (life, home, auto, etc) doing just fine? What about health insurance is unique?
Health insurance is at least in some ways different than other types of insurance. If your car insurance policy covered unexpected repairs and routine maintenance as well as accident damage, theft, vandalism, etc., that would be a better parallel. Health insurance is generally considerably more comprehensive than other kinds of insurance (well, ostensibly, anyway).
Then there’s the matter of risk analysis. Other types of insurance are generally insuring things far less complex and far easier to analyze than human health.
The biggest difference between health insurance, and other types of consumer coverage, is how its actually purchased.
Most, if not all, private health insurance is provided as a benefit by employers. What this effectively does is separate the purchasing agent from the end consumer. Meaning, the entity buying the insurance is concerned with completely different things than the person using the insurance. Don’t like your coverage? You can’t shop around for different insurers. You’re limited to what your employer has chosen.
Why can’t you just opt out of your employer’s plan and shop around yourself? The biggest problem with that is the difference between before- and after-tax dollars. Which makes individual coverage substantially more expensive.
Short answer?: Supply and demand doesn’t work very well when there are multiple intermediate entities between supplier and consumer.
If you wanted a market approach to health care, some of Bush’s proposal’s from early in his second term were a step in the right direction. Those proposals were also essentially DOA. The current Republican stance of “All is well!” is pretty idiotic.
“hy can’t you just opt out of your employer’s plan and shop around yourself? The biggest problem with that is the difference between before- and after-tax dollars. Which makes individual coverage substantially more expensive.”
No. The biggest difference is that you have no buying power. You are an individual with no way to spread the risk you represent, and therefor, to be profitable on you, the insurance companies need to charge you more. More, since you need health insurance more quickly than they need to sell you a policy, you have absolutely no leverage at in the transaction.
Am I not an individual when I go to buy any other type of insurance? Also, one needs, for example, food more quickly than any restaurant or grocery store needs to sell you a policy. Does a consumer have no leverage in a restaurant or grocery store?
Am I not an individual when I go to buy any other type of insurance?
Yes, you are – and you are at the same competitive disadvantage. Which is why professional associations and groups like the NARP can offer their members various types of insurance at lower rates than you could get as an individual: because through them you are getting a group rate.
one needs food more quickly than any restaurant or grocery store needs to sell you a policy
Since they’re not selling you insurance, I have no idea what that means. But if you’re suggesting you can negotiate a price with your local eatery or grocery, good luck to you.
Oh, and if you’re suggesting your leverage consists of being able to say “I’m going somewhere else,” that’s true – but you can do it because you have more than ample information (and time and opportunity) to comparison shop, something that is almost impossible in the case of insurance, particularly health insurance.
a) Unlike many other forms of insurance (exception, life) there’s very little chance that you will not use your policy, when it comes to health insurance. Many people go their whole lives without using, say, renter’s issurance. Many people pay auto insurance for decades and only use it two or three times. That affects the willingness of an insurance co. to extend policies to an individual.
b) As a consumer of food, the leverage a consumer has isn’t in the form of price negotiation, but there is leverage on the side of the consumer earlier in the process, at the price-setting stage. This leverage is in the form of competition. Food suppliers know there are a virtually infinite amount of other options that a consumer can choose to meet his or her need. There’s heavy compeition even for niche or luxury foods. The marketplace itself offers some level of leverage to the consumer when it comes to everyday consumer activities. That’s not the case with health insurance.
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