• Why you need a control group, insurance competition edition

    David Freddoso rails against the lack of competition in the ACA:

    Obama made one promise you may not remember – an implicit promise – while speaking before Congress in September 2009.

    He decried the fact that “in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company. And without competition, the price of insurance goes up and quality goes down.”

    He was clearly implying that his health care reform law would improve this situation. Today, we can see whether it has.

    He supplies data:

    In Obamacare’s first year, consumers in only 313 of the 3,135 U.S. counties will have more than five insurers available through the ACA exchange.

    Lest you think this number is used as some kind of trick, note that this does not include such major U.S. cities such as Atlanta, Chicago, Philadelphia, Pittsburgh, Raleigh, Louisville, Indianapolis, Columbus, Kansas City, Saint Louis … well, let’s just say a whole bunch of big and important cities have less than five insurers.

    In 78 percent of U.S. counties, customers have a choice between three ACA insurers or fewer. And in 17 percent of U.S. counties – including all counties in New Hampshire and West Virginia – just one insurer has a monopoly on the subsidized exchanges.

    In 31 of the 50 states, not a single customer has a choice on the exchange of more than four insurance companies.

    In 21 states (including five of the six New England states and five Southern states), no customer has a choice of more than three insurers.

    OK, I suppose that sounds bad. Do I wish we had more competition? Sure. Do I wish Obamacare did more to encourage competition? I guess.

    But the real question is how much of a change this was from before. Here’s a report from the AMA in 2011:

    The AMA’s latest findings regarding competition in the health insurance industry include:

    • A significant absence of health insurer competition exists in 83 percent of metropolitan markets studied by the AMA. These markets rated “highly concentrated,” based on the newly revised Horizontal Merger Guidelines issued last year by the U.S. Department of Justice and Federal Trade Commission*.
    • In about half of metropolitan markets, at least one health insurer had a commercial market share of 50 percent or more.
    • In 24 of the 48 states reported in the new AMA study, the two largest health insurers had a combined commercial market share of 70 percent or more.
    • The 10 states with the least competitive commercial health insurance markets, are: 1. Alabama, 2. Alaska, 3. Delaware, 4. Michigan, 5. Hawaii, 6. District of Columbia, 7. Nebraska, 8. North Carolina, 9. Indiana and 10. Maine.

    I don’t know what the correct amount of competition should be. But it’s not enough to say that it’s bad now. We had bad competition in “four out of five US insurance markets” before the ACA. This system has been broken for a long, long time.


    • And, has you have often pointed out, more competition among
      insurers just means more market power for providers. I think the
      most important thing the ACA has done in this area is require
      insurers to limit the amount they retain on administration and
      profit. You might get lower prices for consumers in the places with
      only one or two insurers.

    • The ACA had provisions for the creation of “Health CO-OPs”,
      which ought to have provided another alternative is some states.
      Don’t know how many of those were formed, but it is a challenge to
      create a health insurer from scratch. Ironically, because of the
      strict line taken on rating rules (everyone must use the same age
      band, cannot vary for a particular plan design by geography for
      your network discounts, etc.), the ACA also set up a “winner take
      all” kind of system – if a particular plan is cheapest in a given
      area for one consumer, it’s pretty well guaranteed to be the
      cheapest for all consumers (before subsidy). This may have the
      effect of *reducing* competition in those areas that still have a
      robust competitive market, like Oregon.

    • Competition must be a bit of a joke in the corporate halls
      of insurance companies. The ACA put in place rules about
      transparency and being able to make “apples-to-apples” comparisons.
      While this is a plus, it’s hardly enough to right the insurance
      market. Competition is so lacking the ACA had to put in place a
      gazillion consumer protections just to right an insurance ship
      enroute to profits looking for every way to plow over the health
      needs of a citizenry To blame Obamacare is ludicrous. Blame the
      same lopsided forces at work that allow a system to continue
      wherein the gov’t canNOT negotiate drug prices in Medicare. Part B
      of the “competition” debate. How can true free market forces ever
      be in play if the consumer can’t play the trump card and say, “I’m
      never buying your product.” We the buyers can never wield the power
      of boycott. We’re all too desperate for insurance.

    • Two comments (or questions). First, I assume that an insurer (BCBS, for example) that offers five, ten, fifteen, twenty plans is counted as but one insurer. Some call that “choice”. I have a different term for it. Second, the “multi-state plan” is floating out there somewhere as the answer to competition that doesn’t exist or the public option that never was. My understanding is that it came so late that nobody is certain what it is or what it is for. Whatever it is, it isn’t in my state (Florida).

    • Here’s a question on competition that is either simply silly or deserves it’s own thread.

      Is there anything in the PPACA to prevent, say, the state of New Jersey from getting into the health insurance business?

      PPACA mandates that insurance companies spend 80% of revenue on health care. This means that as a consumer, I pay $100 for $80 of health care. Since Medicare overhead is 2 or 3%, New Jersey could offer health insurance and spend $80 of every $90 it takes in on actual health care, leaving $5 for overhead and $5 for general revenue.

      Consumers get 10% cheaper insurance and NJ gets a new source of revenue. Big win all around. Except for the insurance industry…

    • I seem to recall one of the first things to be traded for concessions in the Congressional debates and compromises in creation of the ACA was trading the creation of a single National Exchange, in favor of individual state based exchanges. Combined with Medicaid expansion being deemed to be “at the State’s option”, its no wonder it hasnt done much, and wont do much, to increase competition.