The market and health care

There's so many ways the health care does not act as a functional market that I could go on a long time.  For this post, I'm just going to highlight the recent AP story which nicely details the fact that in most states, there just is not serious competition among health insurers.  We all know how well monopolies work for consumers.  Anyway, so here's the problem and how the public option would address it:

Several studies show that in lots of places, one or two companies
dominate the market. Critics say monopolistic conditions drive up
premiums paid by employers and individuals…

A study by the Urban Institute public policy center estimated that a
public plan could save taxpayers from $224 billion to $400 billion over
10 years by lowering the cost of proposed subsidies for the uninsured,
while preserving private coverage for most people.

"Right now,
there's no incentive for insurers or big hospital groups to negotiate
with each other, because they can pass higher payments on through
premiums," said economist Linda Blumberg, co-author of the report. "A
public plan would have the leverage to set lower payment rates and get
providers to participate at those rates."

"The private plans
would come back to the providers and say, 'If you don't negotiate with
me, you're going to be left with only the public plan.'" Blumberg
continued. "Suddenly, you have a very strong economic incentive for
them to negotiate."

The response from insurers?

 "You can have a very competitive market and still have companies with a
high market share," said Alissa Fox, a top Washington lobbyist for the
Blue Cross Blue Shield Association.

Right, just like Standard Oil and railroad monopolies were very competitive.  

Anyway, markets really are great, when they work, and the evidence is pretty damn strong that they simply don't work when it comes to health insurance.  Here in NC, for example, Blue Cross/Blue Shield has over 95% of the individual market and about 80% of the employee-based market.  That's not good for anybody but BCBS.  Introducing a public option into the mix (along with the health exchanges) is actually a market-oriented reform because it has the potential to create a properly functioning market where one did not previously exist.  Personally, I'd love to have an option besides just BCBS offered to me by the state of North Carolina, but so far Republicans and conservative "Blue Dog" Democrats are successfully preventing that in the legislation under consideration. 


About Steve Greene
Professor of Political Science at NC State

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