Friday, June 12, 2009

Lack of Competition in Health Care Insurance

Health care reform: The real problem is lack of competition
06/11/09 - St. Louis Post-Dispatch by David C. Rose

[edited] The Obama Administration is moving ahead on health care reform. Obama's plan will push nearly all Americans into government-provided health insurance. That is not a good thing. The problem with American health care is too little competition.

There is justifiable concern about the uninsured. Most Americans end up getting health care when they need it, but the current approach produces incredible anxiety and is ridiculously inefficient.

There is rising frustration with the increasingly shabby way insurance companies treat patients. Patients can't do what restaurant patrons do when they receive poor service, which is to go elsewhere. Most health insurance is tied to a job, so most patients are stuck with their insurance company. And it shows.

The Obama administration's plan will produce less competition. But, the solution is more competition.

Why is the health insurance market so uncompetitive, unlike other insurance markets? During World War II, a tax break was granted to non-wage benefits such as employer-paid health insurance premiums. Over time, this cost saving tied most American health insurance to employment. This forces patients to fire their employer before they can fire their insurance company. So, we get poor treatment from insurance companies.

For true competition in health care, it must be possible for individuals to fire their insurance company. This requires extending the tax break on employer-provided health insurance to all health insurance, including privately purchased policies.

Medicare is a good deal partly because the government drives a hard bargain with health care providers by offering artificially low payments. In a competitive market of many insurers, no one insurer could do this.

Artificially low payments don't cover the full cost of procedures, so health care providers shift costs to everyone else. In other words, the lack of competition in today's market leads to higher insurance costs for people who aren't old enough to qualify for Medicare. Extending Medicare-like insurance to everyone won't work, because no one will remain to pay the shifted costs.

[ The same applies to emergency room (hospital emergency department) prices. The law EMTALA forces ER's to treat all patients equally regardless of ability to pay. They must shift these costs onto those who can pay. This produces the amazing $10 ER aspirin. -ag ]

In a competitive market, driving such hard bargains is impossible, so prices reflect actual costs. The Obama administration plan will give us the worst of both worlds.

  • Artificially low premiums will drive most private insurance out of business.
  • There will be no place to shift costs.
  • Shortly, we will have no reduction in cost from cost shifting.
  • We will have substantially less competition.
  • Less competition will result in higher actual costs.

This has been the experience in countries with nationalized health care. Many have an even worse looming entitlement problem than the United States.

The better solution is to give the same tax-free treatment to both individual-purchase and employer-provided health insurance. That would indirectly reduce the costs for covering the uninsured, which is the other major problem in American health care.

It is now very difficult to purchase insurance if you are not employed or if you work for a very small employer. Once insurance migrates out of large employer pools, sufficiently large pools will become possible with individualized insurance. Customers then would be able to vote with their feet if they are unsatisfied, and those who don't work for large employers no longer would have to pay higher premiums than everyone else.

There still would be some uninsured people. That could be handled directly through insurance vouchers. A voucher program would further eliminate distortions and reduce costs, not just shift costs.

A successful example is food stamps, which have essentially eliminated the problem of hunger in America. Food stamps are vouchers that provide direct payments while preserving competition. Small wonder they work so well.

A society may decide to provide benefits to people. The wrong way is to force the producers of those benefits to raise their prices to cover the extra costs. The right way is to give vouchers to those who are favored. The political problem is that vouchers reveal the value of the benefits, rather than hiding those benefits within the market.

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ER Medicine and Bureacracy
08/31/08 - MDOD by 911DOC

Medicine becomes more expensive, harder to do, with worse outcomes, as government imposes intrusive regulation and arbitrary quality measures, despite any good intentions. Government Motto: "You say you are a caring doctor, so treat the poor for free."

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