Markets Don’t Work For Health Insurance Because There’s Not Enough Competition

I’m currently researching for a presentation on Medicare.  Along the way, I found this post by Garth Brazelton at Reviving Economics:

My big concern is something that has been known since the beginning and that is, Obamacare does nothing to erode the existing monopolies of health insurance in many states.  The biggest issue with Obamacare in my view remains the fact that the so-called marketplace doesn’t really create a true market.  The fact is, plans cannot be bought and sold across jurisdictional lines.  Obamacare may actually serve to simply consolidate monopoly or oligopoly power – which may in fact keep prices higher than they otherwise should be.   The ironic thing is that we probably would be better off if the government just created its own monopoly power and moved us to a single-payer system.   That way, the government could have more control over prices.  Under this private monopoly system though, that can’t happen.

The Affordable Care Act (the so-called Obamacare) effort makes many improvements that are and will continue to help the U.S. get healthcare spending under control. But it won’t get us down to spending levels all other industrialized countries achieve (with better outcomes) largely because it relies on private insurance companies exclusively for under-age-65’s.

Conservative critics like to claim markets work wonders and achieve efficient outcomes.  That’s only true when there are competitive markets, full and symmetric information about the product/services, free entry, and transactions are discreet and not long-term relationship based.  Healthcare fails all of these.  As Brazelton points out, competition is seriously missing at the appropriate market level – the consumer.  As for the other requirements for markets to succeed in healthcare, Kenneth Arrow explained why that doesn’t and can’t happen fifty years ago in this seminal paper.

Instead of trying to dismantle the Affordable Care Act and move towards more so-called “free market” system, we should be moving toward a single-payor insurance system (like Canada) or at least toward providing a public-option so private insurance companies have a real competitor.