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.

2 thoughts on “Markets Don’t Work For Health Insurance Because There’s Not Enough Competition

  1. You are obviously correct.

    Selling health insurance across state lines was a no-brainer idea for cost controls that should have been included in the ACA, but wasn’t.

    Guess what?… yup! That’s right!… Republicans were the ones calling for that inclusion way back in 2009.

    Perhaps if Democrats had opened their ears even a smidgen then that and other good Republican suggestions put forth in their 10 health care plans that they submitted back then would have made ACA a much better law than it is today.

    Not a single “R” plan was even allowed to be discussed in committee, let alone taken up by the full House or Senate.

    Put the onus where it belongs… squarely on the people who designed ACA. Blame them for its shortcomings..

  2. Totally agree with you as well. I can understand why competition is banned between states though. The reasoning is that you won’t actually see more competition, but instead more mergers. All the BlueCross BlueShields will start to buy up each other and you’ll see more mega corporations. Eventually you’ll end up with one BlueCross BlueShield, HumanaCigna and UnitedCareMark or some crazy stuff like that.

    For something as important as health care, a single payer system makes more sense. You still have private insurers in New Zealand, Australia and the UK (as well as others) but they offere more supplemental services. The base system (ACC is NZ, Medicare in AU and NHS in UK) is very good for most people and provides a baseline of services that keeps people in good heath.

    For instance, the other day I was playing soccer and we saw a guy with a massive bruise. I’m pretty sure he got a fracture. We were like, “Dude just go to hospital, get it x-rayed.” It might have not been a break, but in the States, you’d have to weight, “Is my piece of mind worth $500 ~ $1200 for an ER visit?” (even with insurance in some cases). And if you don’t go and it is a break, it’s going to take up to an extra year to heal if they have to re-break it when you do finally get it looked at. Where as here, there’s no excuse. It’s going to cost very little if anything at all, and if you don’t go it’s just because you’re dumb.

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