Paul Krugman says it's Switzerland, more or less, that's on offer. I understand the point.
Yet, under the new scheme, what keeps healthcare companies, profit maximizers, from hiking their prices?
Afterall, you see the proposal to drop inter-state regulations for insurance companies. So, could we end up with an American healthcare oligopoly? We dropped inter-state bank regs and got giant banks. How'd that work out? (I mean, will Bernanke's Fed drop a study comparing all the putative consumer cost savings of bank mega-mergers with the cost of the our current bank-oriented bailout, priced in trillions, now, in deficit and lost output?).
Compare also how telecom deregulation helped consumers, with fierce, beneficial price competition. Today's Comcast price of phone-internet-TV: $109/month. Today's FIOS price of phone-internet-TV: $109. Yes, that's right, there is no price competition at all going on, at least in my local market. (Out of pocket European costs are a fraction of that, so ...).
A THREE-PAYOR SYSTEM?
Well, if everyone is forced to buy your insurance product, then it stands to reason you put all your profits into marketing, until you reach an oil-market like cartel power with just two-or-three other providers. Large companies will buy from the largest insurers - we wouldn't expect "IBM" to buy insurance from a new entrant to the market, with a low price. That behavior will hasten the path to consolidation, one could argue (unless large accounts are profitless for health insurers - I don't know). What's more, instead of paying for healthcare, consumers will be paying for ... insurance marketing. (!)
Maybe I'm wrong. Afterall, Switzerland does have many sellers of basic insurance.
But, they tier the market and charge based on 'individual risk' for all tiers, including the right to refuse insurance beyond the "basic sickness" contract. Put another way, there seems to still be a Swiss role for insurance companies to compete on how well they manage their risk pools.
Change needs to come, and these questions are not a clear indictment of HR3200.
Maybe it is a non-issue, because it is already an issue? For the small business, they already face significant oligopoly (someone should brief Kathleen Sibelius on just how little competition there is in this critical marketplace, one that everyone seems to target):
Better minds than mine, hopefully, have been in on designing what looks like a minimum standards health contract, that will pass for 'systemic reform'.
But, it would pay to have leading economists (and lawyers) give an idea of how they think insurance companies will respond to changes in their regulatory environment, of the kind proposed. At a minimum, it would be nice to know whether premiums really will come down in the near term, under the proposed give-get.
Last, if running an American health insurance oligopoly is the price to pay for universal care (10% of the total US healthcare bill is hundreds of billions), it would be nice to see that there is some thought to how that formulation actually drives administrative costs out of the system ...
Wednesday, August 26, 2009
The Economics of the New Healthcare
The five largest [insurance] carriers, when combined, represented three-quarters or more of the market in 19 of the 34 states supplying information, and they represented more than 90 percent in 7 of these states.
