The Nation: The Ailing Health Insurance Markets

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BLOG | Posted 04/02/2008 @ 3:11pm
The Ailing Health Insurance Markets
J. Goodrich


Oh no! Another economics post! And a long one! Don't fret. The next one will be as fluffy and short as I can make it. But today I want to play doctor and patient with the US health insurance markets.

How to fix the problems of health insurance is a hot topic, these days, honest, and I want to chip in before the elections are over and we forget all about its importance. While Barack Obama and Hillary Clinton are offering competing plans which would cover the forty-seven million uninsured in this country, John McCain has a proposal to cut health care costs by increasing competition in the markets. His idea is that competition would drive the price of insurance so low that most everybody could afford coverage! No need for the government to poke its nose where it is not wanted, and the conservatives surely don't want it meddling with the markets.

There's a sense of deja vu about McCain's proposal. Haven't we been injecting competition into the health insurance markets for a very long time? Even the establishment of the government Medicare and Medicaid programs in the 1960's had a pro-competitive edge, because it removed from the commercial markets the most expensive and the poorest paying cases, leaving them with the most lucrative consumers to insure. The Health Maintenance Organization movement of the 1970's was another injection of that competitive hormone into the insurance markets in the form of prepaid group plans which combined insurance with the provision of care. What additional forms of competition has McCain invented that health economists never dreamt about?

The truth is that not all competition is helpful to consumers. I know that this is not an idea free-market conservatives like, but it's possible for competition to actually hurt some consumers.

For instance, if a product is hard to judge in quality and contents, competition in the price of that product may be meaningless for consumers who don't know what they are getting for the price. Just ask yourself how many people clearly understand the concepts of deductibles and coinsurance (the parts the patient must pay despite having insurance) or how many people clearly understand that the insurance company may refuse to pay for some of those health expenses which you thought were covered by the policy. Then ask yourself what the actual insurance is that these consumers believe they are getting when a policy advertises itself for some attractive price.

Group health insurance policies get around some of these informational problems, sure. But those policies are not available to everyone. They are usually offered by employers. This means that the group to be covered is at least healthy enough to turn up for work. What about those who are not healthy enough for that or who work for themselves or for the many small firms which can't afford to offer health insurance as a benefit? ......(more)

The complete piece is at: http://www.thenation.com/blogs/passingthrough?bid=769