Politicians and policymakers were convinced that creating competition among health insurance companies was key to lowering costs. They we’re wrong then and now. They did not understand how health care works and thus applied inappropriate market assumptions. The co-op plans are failing and now the idea of multi-state insurance plans is on the skids, but those are not the real issues.
Competition among insurers in a given area is counterproductive. Think about what makes up a health insurance premium. Mostly it is health care claims. A small part is claim and other administration and an even smaller part is profit. The primary vehicle to control claim costs is negotiated fees for doctors and hospitals. To negotiate the best possible fees you must have leverage. That leverage is the number of patients (those people you insure) you can offer health care providers for their reduced fees.
If you negate that leverage by dividing the insured among more and more insurance companies, you can’t lower or control costs because you can’t do as well negotiating fees. And you probably must have smaller networks.
Fees are not the only component of costs. The other is the amount and type of services provided. On that score competition causes more confusion and raises the hyper-sensitive issue of how much involvement you want your insurance company to have in determining what and how much health care you receive.
What about profit, can’t insurers compete on that? Well, the profit margin on health insurance is about 7% and often 5%; not much to compete on. And keep in mind that Obamacare limits loss ratios (the percentage overhead expenses are of total premium) to 20% maxiumum so insurers are limited in what they can do beyond what is already mandated. When it comes to health care, more of anything is rarely better.
Real health care experts know all this (read this) but waiving the competition banner just sounds good, even an easy solution so politicians keep using it. Obamacare was constructed by politicians, the ultimate committee invention and as such does not consider unintended consequences, how things really work, ignores past efforts to control health care costs and forgets about human nature.
The promise of affordable health insurance was built on one thing; government subsidies for some Americans paid for by other Americans. For everyone Obamacare raises the cost of health care and its administration via its many mandates, taxes and rules and regulations. For the tens of millions of Americans with employer coverage it helped open the flood gate for lowering benefits and shifting costs to workers.
For many middle-class working Americans Obamacare is counterproductive and lowers their net income by helping to raise premiums and encourage higher out-of-pocket costs.
The ratio of winners to losers with Obamacare is not good.
A health law insurance program that was expected to boost consumer choice and competition on the marketplaces has slipped off course and is so far failing to meet expectations.
Since just a few insurers, or sometimes just one, dominate the market for individuals and small businesses in some states, the law sought to increase competition in those areas by calling for “multi-state” health plans that would be offered by some insurers.
The law required that at least two multi-state plans be available to consumers in 31 states by 2014 and in all states by 2017, but it doesn’t require insurers to offer the plans and most so far have opted not to.
Federal officials and insurance experts say it is unlikely that the 2017 goal will be met. “Conceptually, the idea just didn’t have legs,” says Linda Blumberg, a senior fellow at The Health Policy Center at the Urban Institute. “It’s too hard to find an insurer who could suddenly compete across the breadth of states and do better on rates than existing insurers.”
The multi-state plan program’s halting start threatens to undermine one of the key tenets of the health law: that boosting competition in the individual market will lead to lower premiums and better coverage. It doesn’t help that health insurance co-ops are shutting down in a dozen states. Of the roughly 9 million people who are covered through the health insurance marketplaces, only 480,000 have multi-state plans.