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ACA Agonistes
NYT: Obamacare Reducing Competition

A long article by Reed Abelson in the New York Times business section expertly illustrates a point that we at Via Meadia have been making for a while: One of the major effects of the Affordable Care Act has been to reduce competition in the health insurance sector. The piece—the latest in a series of NYT stories documenting the ACA’s shortcomings in the private insurance market—attempts to explain why the once-vaunted Obamacare co-ops (alternative, not-for-profit health insurers) are failing so spectacularly. The answer: The law has not lived up to its supporters’ promises that it would foster competition and drive down prices, and instead has created an insurance market increasingly controlled by large carriers. NYT:

As the new co-ops begin failing just a year into the effort to remake the health care industry with more competition and lower costs, the marketplace is proving hostile to newcomers trying to break into an industry dominated by powerfully entrenched businesses. […]

The co-ops’ problems are compounded by moves among the industry’s biggest companies, like Anthem and Aetna, which plan to buy their rivals to become even bigger. That raises the specter of even less competition in the marketplace and less room for smaller players to make a dent.

The existing health insurance landscape isn’t just a problem for co-ops, which are subject to a special set of rules and regulations; it’s a problem for for-profit insurers trying to break into the market as well:

In addition to the co-op failures, there have been other notable departures. Assurant Health, a for-profit insurer that tried an aggressive entry into the individual insurance market last year, stopped selling coverage altogether. Even one of the most popular new plans in Minnesota, offered in 2014 by a collaboration of local hospitals and doctors, no longer covers people through the state marketplace.

The McKinsey Center for U.S. Health System Reform counted dropouts among insurance carriers that were selling insurance to individuals for the first time (rather than group coverage to small businesses or large employers). It found that eight carriers had dropped out of nine states so far.

Furthermore, “only two for-profit companies that were not already health insurers have entered the state marketplaces so far.” The market is unfriendly to new entrants because premiums are rising as insurance companies take on sicker customers. Moreover, major insurers’ connections and capital gives them a substantial advantage on the ACA exchanges. This could become a vicious cycle: As competition wanes, premiums will rise, which will make the market even more unaffordable for new insurance companies. This would be good news for giants like Blue Cross and Aetna, which look likely to dominate a greater and greater share of the health insurance market, but not so good news for consumers looking for affordable plans.

The NYT article on health insurance competition is a reminder that looking at the raw number of Americans who are insured gives only an incomplete window into how well our healthcare system is working. Today, the Obama Administration announced that the percentage of Americans without health insurance fell in the last year. This doesn’t say anything about what kind of coverage the newly insured will get, or how sustainable the system is over the long run. If competition continues to collapse, the law will not fare well by these measures.

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  • FriendlyGoat

    The whole idea that insurance corporations actually compete to drive down prices for consumers is flawed theory. What insurance corporations want to do is “sell insurance across state lines” so that citizens can do the competing state by state to see which states will enact the lowest policy standards. Then the insurers will relocate and invite not only the former Obamacare enrollees to by a poor policy for cheap, BUT ALSO INVITE ALL THE EMPLOYERS TO MOVE THEIR GROUP INSURANCE TO POOREST-STANDARD STATE FOR CHEAP AS WELL.

    Don’t be fooled. NO ONE would ever be offered “more for less” in the over-state-lines arrangement. You would only be offered “less for less”. MUCH LESS COVERAGE. That’s how real business works.

    • Kevin

      The rate of return on insurance is strictly regulated by state insurance agencies (and now the federal government via PPACA) through the rate plan filing process. Since the profit per dollar of revenue is tightly controlled via regulation, the way to expend gross profits is to increase the cost of the services covered by insurance. Obviously if a carrier had higher costs than its competitor its insurance would be more expensive than it’s competitors, so the only way to increase profits is to require all carriers to have higher costs. (The perversity of this regulatory framework is that it eliminates competition to drive down costs by greatly diminishing the profit incentive to reduce costs as reduced costs mean lower regulated profits per unit of costs.) Thus the carriers favor state or federal regulations requiring additional services to be covered as this will raise the costs and hence the regulated profits of every carrier. As a result insurance companies and health care providers conspire to get state regulators to increase the number of mandatory services that must be covered – health care providers to get paid for providing additional care and carriers to get additional profits in a monopolistic industry with regulated rates of returns. If consumers were able to shop across state lines they would be able to evade state regulators who have been captured by both the carriers and the providers.

      • FriendlyGoat

        First of all, we have federal standards which conservatives would need to repeal in order to revert to state standards. We do know the conservatives want to do that. The standards I am specifically speaking of are not only which services must be covered, but the cap on maximum out-of-pocket.

        You may wish to evade the regulators in order to get permission to buy a policy cooked up in a forever-red state such as Mississippi or Oklahoma. I have no interest in such a thing because I know what “small-government”, “no-regulation” types will do to consumer protections. As it was in the past, these GOP politicians could only screw the people of their own states, and so there was a limit to the potential screwing. When they fix matters so they can claim “economic development” and “new insurance company jobs” by racing to the bottom on standards to “attract carriers to locate in the state” for products to be sold nationwide, consumers will have their legs cut out from under them. No thanks. It’s bull on a stick.

  • lord acton

    True ‘dat Senor goat.

  • CapitalHawk

    You portray this whole thing like it is bad. I think you are missing the most important thing, which is that once a state has eliminated all of the opposing insurance carriers except one, we will have finally arrived at the left wing health care nirvana – single-payer health care!

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