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NYT Sours on Obamacare?


In the NYT‘s Economic Scene column this week, Eduardo Porter compares the Obamacare roll-out to Harvard University’s introduction of a similar plan in the mid-1990s. In that case, the university made changes that were intended to encourage covered employees to shop around for care. The plan seemed like it was working, at first; competition had cut Harvard’s health care costs by 5-8 percent. But as time went on, younger and healthier employees dropped out of the plan altogether, leaving behind the older and sicker. Insurance premiums shot up, pushing out another layer of the relatively young and healthy, which pushed up premiums again, and so on.

This is a classic description of an adverse selection spiral, and Porter acknowledges the possibility that the same fate awaits us on a national scale with the roll out of Obamacare. And adverse selection is only the beginning of the dangers: Research suggests that, as competition between insurers increases, top hospitals will raise their prices, and smaller health plans will have trouble keeping costs down:

A few studies have found that more competition among health insurers leads to lower hospital fees on average and that premiums rise when insurer competition diminishes. But researchers have also found that top hospitals — which any decent plan must have on its network — increase their fees when more health plans compete for their business.

Some economists have voiced fears that insurers with small market shares will not have the clout to bargain effectively with enormous hospital systems, which are being encouraged to consolidate even further into Accountable Care Organizations that take charge of patients’ entire health needs.

“The more health plans compete for insured in a local health market, the more fragmented the payment side of the market will be vis-à-vis the ever more consolidated supply side,” Uwe Reinhardt of Princeton, a contributor to The Times’s Economix blog, wrote me in an e-mail. “And the higher prices for health care will be.”

As Porter says, “disaster is unlikely”, and there are provisions in the law that theoretically will mitigate many of these concerns. But “avoiding disaster does not amount to success.” Much depends on the ACA’s ability to bend the cost curve in a favorable direction. The Harvard and Massachusetts experiments have shown that this is an uncertain prospect at best.

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