The Incidental Economist

Yes, the chart pretty well shows that one of the problems with healthcare in America are highly concentrated geographic markets for health plans. The answer is to tighten and enforce the antitrust laws, i.e., work to decentralize economic power in these markets. We’re going in precisely the wrong direction.

Wait, what? We know that markets with a lot of insurers actually correlate with higher prices, because hospitals use their market power more effectively and demand rate hikes. Since we do not operate in a normal market in healthcare, but instead one driven by emotion that is relatively nonresponsive to the cost of care (in part because prices for care are unknown to consumers), sufficient competition among insurers can’t be gleaned by looking at a chart like the one in the post.

Also, it isn’t just about the number: there are industries with just 3-4 players that dominate yet prices are kept under control, customer satisfaction is high and innovation occurs. If the argument is that more insurers will lead to more satisfaction or innovation, despite higher costs, maybe, but we do have dozens of insurers with more than a billion dollars of revenue each year. There is less industry concentration among insurers than cell phone makers.

In terms of local market dominance, which the chart purports to show, we shouldn’t forget that in addition to fully insured commercial business there is Medicare, Medicaid and self-insured commercial business. I doubt the chart from the AMA(!) reflects that. An individual consumer doesn’t typically get to pick between these types of coverage, but it does complicate the picture of market dominance.

Cell phone networks or cable companies would be far better examples of insufficient competition and its adverse effects than health insurers.